How to Calculate the FRNG

This guide is written for expats and foreign founders by a French CPA, an English-speaking accountant in Paris, with practical focus on accounting in France, French corporate tax, business setup in France and French payroll.

How to Calculate FRNG: Complete Guide to Optimize the Financial Health of Your Business#

The Global Net Working Capital (FRNG) represents the excess of stable resources over your company's fixed assets, measuring its ability to finance its operating cycle without cash flow tension. Mastering your calculation is essential to assess financial solidity and anticipate risks, as Samuel Hayot, chartered accountant in Paris 8th at Hayot Expertise, explains to us.

In a volatile economic context, where payment terms are lengthening and investments weigh heavily on cash flow, the FRNG acts as a barometer of financial resilience. It reveals whether your permanent capital covers your long-term employment well, thus avoiding undercapitalization which could lead to repayment difficulties or cessation of activity.

The Key Issues of FRNG in 2026#

• Risk management: An insufficient FRNG exposes you to recurring bank overdrafts, with costly fees.
• Strategic decisions: It guides investments, hiring or expansions without resorting to risky short-term financing.
• Bank compliance: Banks often require a positive FRNG to grant loans or lines of credit.
• Sectoral standards: In construction, a FRNG representing 20-30% of fixed assets is ideal; in commerce, it must cover at least the working capital requirement (WCR).

According to recent accounting data, 40% of French SMEs display a negative FRNG, leading to 25% of bankruptcies. Calculating and optimizing your FRNG is not an option: it is a necessity to sustain your business.

Difference between FRNG, WCR and Net Cash#

• FRNG: Overall surplus of stable resources (top of the balance sheet).
• WCR: Working capital requirement, linked to the operating cycle (stocks + receivables - debts).
• Net cash flow: FRNG - WCR, immediate liquidity available.

Linking formula: Net cash = FRNG - WCR. A positive FRNG but a high WCR can deplete cash flow.

The calculation of the FRNG is based on the functional balance sheet, mandatory in France for companies subject to the PCG (General Accounting Plan). Two equivalent approaches validate the result.

1. Top of Balance Sheet Method: Stable Resources vs Fixed Assets#

This classic formula, the most used by accountants, measures the self-financing of sustainable investments.

FRNG main formula: FRNG = Stable resources (or permanent capital) – Fixed assets

Detailed Components of Stable Resources

Stable resources include anything available for more than a year:

• Equity: Share capital + reserves + profit for the financial year (after allocation).
• Provisions and depreciation: Cumulative depreciation, provisions for risks and charges.
• Long-term debts: Borrowings >1 year, net leasing, financial debts excluding accrued interest.
• Others: Passive conversion difference, redemption premiums (to be deducted if applicable).

Numerical example: Equity: €300,000 Reserves: €100,000 LT loans: €200,000 Depreciation: €50,000 Total stable resources: €650,000

Components of Fixed Assets

• Intangible assets: Patents, software, goodwill.
• Tangible fixed assets: Buildings, machines, vehicles (net value).
• Financial assets: Participations, investment securities >1 year.

Continuation of the example: Tangible fixed assets: €400,000 Intangible: €50,000 Financial: €100,000 Total fixed assets: €550,000

FRNG = €650,000 - €550,000 = €100,000 (positive).

2. Bottom of Balance Sheet Method: Current Assets vs. Current Liabilities#

Valid for cross-referencing data, this approach integrates cash flow.

Alternative formula: FRNG = (Current assets + Active cash flow) – (Current liabilities + Passive cash flow)

• Current assets: Stocks, customer receivables, values ​​within one year.
• Current liabilities: Supplier debts, tax/social debts, loans <1 year.

Concrete example for a construction company (inspired by real cases): Current assets: Material stocks €80,000 + Receivables €120,000 = €200,000 Active cash: Bank €50,000 High total: €250,000 Current liabilities: Suppliers €100,000 + Social insurance €30,000 = €130,000 Passive cash flow: Overdraft -€20,000 Low total: €150,000 (adjusted) FRNG = €250,000 - €150,000 = €100,000 (consistent with method 1).

Third Advanced Method: Extended Formula for Complex Analyzes#

For groups or companies with leasing: FRNG = Equity + Depreciation + Debts LT – Gross fixed assets + Adjustments (conversion differences).

Case 1: Commercial SME (Turnover €2M)#

• Stable resources: Capital €400k + LT loans €300k + Amortization. €100k = €800k
• Fixed assets: Premises €500k + Vehicles €150k = €650k
• FRNG = €150k → Covers a WCR of €100k, net cash flow €50k.

Case 2: Tech Startup (Heavy investments)#

• Resources: Capital €200k + LT Subsidies €100k = €300k
• Fixed assets: Software €400k
• FRNG = -100k€ → Red alert: urgent recapitalization.

Case 3: Service Company (Low fixed assets)#

• Resources: €600k
• Fixed assets: €200k
• FRNG = €400k → Excess liquidity to invest.

These examples underline the importance of adapting the analysis to the sector: commerce requires a FRNG > BFR; industry tolerates a moderate FRNG if rapid cycle.

FRNG Positive: Strong Financial Health#

• Meaning: Resources exceed fixed assets; margin for the WCR.
• Ideal threshold: 10-20% of permanent capital.
• Actions: Optimize via debt relocation or moderate dividends.

FRNG Null (≈0): Precarious Balance#

• Risk: No margin for unforeseen events; tight cash flow.
• Recommendation: Increase equity via associates.

FRNG Negative: Danger of Undercapitalization#

• Causes: Excessive investments without own funds.
• Consequences: Refusal of loans, legal recovery possible.
• Remedies: Capital increase, sale of assets, search for investors.

Quick Interpretation Table:

Increase Stable Resources#

1. Capital increase: Contributions in cash or in kind (minimal registry fees).
2. Structured LT loans: Loans at subsidized rates via Bpifrance (up to 10 years).
3. Resumption of depreciation: Accelerate via derogatory methods if justified.

Reduce Fixed Assets#

• Rental management or leasing for equipment.
• Sale-leaseback: Sell and re-rent your premises.
• Digitalization: Reduce intangible assets via SaaS.

Tax and Legal Impact in 2026#

• IB deduction: Optimized depreciation reduces the IS without impacting FRNG.
• CFE and CVAE: Low fixed assets minimize these local taxes.
• Verification: The FRNG is scrutinized during Urssaf/DGFiP inspections.

Practical Tools: Automated Excel or software like Sage/Cegid for dynamic simulations.

• Forget depreciation in stable resources.
• Include cash in fixed assets (classic error).
• Do not annualize: Recalculate at each N-1 closing.
• Ignore post-BFR adjustments (exchange differences).

An SARL in the 8th arrondissement (turnover €1.5M) had a negative FRNG of -€80k due to an unfunded machine investment. Diagnosis: High WCR (stocks €200k). Applied solutions:

• Capital increase €100k.
• Negotiation of LT debts at 5 years.
• Result: FRNG +120k€ in 18 months, cash flow +60k€.