Necessary operating assets or capital

The operating necessary assets refer to the part of the fixed and current assets that are required for performance creation. Similarly, operating necessary capital represents the part of the liabilities that is necessary for achieving the purpose of the operation.

Operating Necessary Assets

The operating necessary assets serve as an auxiliary measure for determining the operating necessary capital. Additionally, it is used in the DCF method for business valuation (see Business Valuation). The operating necessary assets are calculated from the total assets (sum of all assets) minus the non-operating necessary parts. Non-operating necessary assets include, among others, long-term decommissioned facilities, residential buildings, securities, and excessive liquidity reserves.

For calculating the amount of operating necessary assets, fixed assets are evaluated with the calculated residual values, while the calculated average value (book value) is used for current assets.

Operating Necessary Capital

Operating necessary capital represents the basis for calculating the imputed interest for an entire company or an individual investment project.

A liability item in the balance sheet does not reveal whether it is operationally necessary or not. For this reason, one must start from the asset side and initially determine the operationally necessary assets.

The operating necessary capital is then calculated from the operating necessary assets minus the deducting capital. The deducting capital represents the part of the capital that is used outside of operations or is available to the company interest-free (e.g., received prepayments and supplier credits).