The distinction between fixed capital and working capital is often not clearly understood. There would be much less confusion if it were possible to drop the adjective "working," which in this connection is meaningless, and substitute the word "revolving." "Fixed" capital and "revolving" capital are almost self-explanatory. The "fixed" capital is invested in the plant, equipment, and other forms which cannot be disposed of without breaking up the business. The "revolving" capital is invested in raw materials, in stocks of partly finished and finished products, in accounts receivable, in salable securities, and in cash. Capital in all these forms is constantly being converted - after whatever alterations in form are necessary - into cash, and this cash flows out again in exchange for other forms of working capital. Thus, it is constantly revolving; or, to use a more common expression, it is being "turned over".

Note that it is said in the preceding paragraph that the working capital is invested in cash or in various forms of assets that are readily convertible into cash. This is not equivalent, however, to saying that the total value of the cash or cashable assets measures the amount of the working capital. On the other side of the balance sheet, there is a group of liabilities, consisting chiefly of short-time bank loans and accounts payable, which must be deducted from the total of the working assets in order to determine the net working capital. If this were not done, a firm which had managed to pile up a great quantity of merchandise debts, might be considered, looking only at its assets, to be well provided with working capital; yet the truth might be that it had little or no surplus of working capital above its current liabilities.

Mention is frequently made of "quick assets" and "quick liabilities," and the question is sometimes raised as to the distinction between them and "working" or "current" assets and liabilities. As a matter of fact, there is no clear-cut or authoritative distinction. In a general sense, however, the adjective "quick," used in this connection, is reserved for assets or liabilities that have only a short period - say 30 days or less - to run. A stock of finished products which are regarded as immediately salable might be listed as a quick asset, whereas a stock of half-finished products or of raw materials could not be described as more than a "working" or "current" asset.