Reclassified balance sheet

How it works

Working capital = current assets − short-term debt · Treasury margin = (receivables + cash) − short-term debt · Structural margin = equity − fixed assets

The statutory layout is built for filing, not for reading. Reclassifying it by liquidity produces three margins that answer three different questions. Working capital asks whether short-term assets cover short-term debt. Treasury margin asks the same thing without counting stock — the harder question, and the one working capital quietly answers 'yes' to. Structural margin asks whether your own money covers your long-term investment, or whether the bank is funding the building.

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Frequently asked questions

Why does treasury margin exclude inventory?

Because stock is the slowest current asset to turn into cash, and often the least certain. A business with positive working capital and negative treasury margin can only meet its short-term debts by selling inventory — which is fine until the month it does not sell.

What does a negative structural margin mean?

Your fixed assets cost more than your equity, so part of the long-term investment is funded by debt. Common and not automatically bad; it becomes a problem when the debt is short-term, because you are financing a ten-year asset on a one-year facility.

What is a healthy current ratio?

Between about 1.2 and 2.0 in most trading businesses. Below 1 means short-term debts exceed short-term assets. Well above 2 is not a prize either — it often means idle cash or stock nobody is moving.

Which liabilities are short-term?

Anything due within twelve months, including the portion of a long-term loan falling due inside the year. Leaving that portion in the long-term column is the most common way this calculation flatters itself.