FRNG explained in English: French net working capital

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 uses of funds, meaning your fixed assets, 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.
• Banking dialogue: no legal text and no public grid sets an FRNG level required to obtain a loan. Financial structure is assessed on a set of indicators, and the FRNG is read together with the WCR and the resulting net cash.
• Sector reading: there is no regulatory FRNG standard. The only solid benchmark is relative: the FRNG must cover the working capital requirement (WCR) of the business. A high-WCR activity (wholesale, construction with work in progress) needs a substantial FRNG; a business paid in advance (restaurants, subscriptions, food retail) operates sustainably with a low or even negative FRNG without that being a weakness.

Be wary of the "ideal" percentages found online ("20% of fixed assets", "15% of permanent capital"): no legal text and no public statistic supports them. The right FRNG level follows from your company's actual WCR, not from a universal ratio.

A measured order of magnitude beats an invented percentage. According to the Observatoire du financement des entreprises (2025 report, Banque de France FIBEN database), the median WCR stands at 28 days of turnover for micro-enterprises and 29 days for other SMEs. Hospitality and food service show a negative WCR instead, -18 days of turnover for micro-enterprises and -29 days for other SMEs in 2024, while manufacturing industry sits well above the median. It is this sector gap, not a universal ratio, that sets the FRNG your business needs.

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: FRNG - WCR, which is also active cash minus passive cash. It is a balance and it can be negative, in which case there is no liquidity available but short-term debt.

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

The calculation of the FRNG is read off the functional balance sheet. One important point, often misstated elsewhere: the functional balance sheet is not a mandatory document. French law requires annual accounts made of the balance sheet, the income statement and the notes, which form an indivisible whole (article L123-12 of the French Commercial Code; the exemption from notes for micro-entities comes from article L123-16-1), and not a functional balance sheet, which is an analytical restatement built from the statutory balance sheet. It is a management tool, not a filing obligation.

That restatement follows one rule you must have in mind before any calculation: in the functional balance sheet, fixed assets are taken at GROSS value, and accumulated depreciation and impairment move to the liabilities side, into stable resources. That is logical: depreciation is financing generated by the business, not a reduction in use of funds. It is also the number one source of error: mixing net fixed assets on the asset side with depreciation on the liabilities side counts the same amount twice.

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

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

FRNG main formula: FRNG = Stable resources - Stable uses (gross fixed assets)

Detailed Components of Stable Resources

Stable resources are the long-term sources of financing:

• Equity: share capital, reserves, retained earnings and profit for the year. Careful, reserves are already part of equity, they are not added a second time.
• Depreciation, impairment and provisions: accumulated depreciation, asset impairment, provisions for risks and charges.
• Financial debts: bank borrowings and other financial debts, excluding current bank facilities and overdrafts, which belong to passive cash, and excluding accrued interest.
• Finance lease restatement: the original value of the leased asset is added to stable uses, while the equivalent depreciation and the outstanding capital are added to stable resources.

Numerical example, correctly restated: Equity (capital, reserves, profit): €400,000 Accumulated depreciation: €200,000 Borrowings over one year: €200,000 Total stable resources: €800,000

Components of Stable Uses

• Intangible assets: patents, software, goodwill, at gross value.
• Tangible fixed assets: land, buildings, machines, vehicles, at gross value.
• Financial assets: equity investments, loans over one year. Marketable securities are not financial fixed assets: they sit in current assets, or in active cash if they are liquid.

Continuation of the example, at gross values: Tangible fixed assets: €550,000 Intangible: €50,000 Financial: €100,000 Total stable uses: €700,000

FRNG = €800,000 - €700,000 = €100,000 (positive).

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

This approach gives the same amount, seen from the short cycle. It serves as a consistency check.

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

• Current assets: inventories, trade receivables, other operating and non-operating receivables, prepaid expenses.
• Current liabilities: trade payables, tax and social security liabilities, other operating liabilities, deferred income.
• Active cash: bank balances and liquid marketable securities. Passive cash: current bank facilities and bank overdrafts. Discounted bills not yet due belong here too, but they are restated on both sides: added back to trade receivables within current assets, hence within the WCR, and shown in passive cash. Booked on the liabilities side only, they would make the bottom-of-balance-sheet calculation fall short of the top-of-balance-sheet one by the exact amount of the discounted bills.

Example, same file: Current assets: inventories €80,000 + trade receivables €120,000 = €200,000 Active cash: bank €50,000 Total short-cycle uses: €250,000 Current liabilities: suppliers €100,000 + tax and social security €30,000 = €130,000 Passive cash: bank overdraft €20,000 Total short-cycle resources: €150,000 FRNG = €250,000 - €150,000 = €100,000, identical to method 1.

Note that the overdraft counts as a positive amount within passive cash: it is a short-term source of financing. Writing it as a negative figure is the most frequent arithmetic mistake in online method sheets.

3. The Linking Formula, the One Your Banker Looks At#

FRNG = WCR + Net cash, therefore Net cash = FRNG - WCR. It is the only one of the three that explains a cash position: a company can have a comfortable FRNG and still be overdrawn, simply because its WCR grew faster than its long-term financing. Strictly speaking this is a control identity rather than a third way of computing the FRNG: net cash is itself derived from FRNG - WCR.

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

• Stable resources: capital €400k + long-term loans €300k + accumulated depreciation €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 → nothing can be concluded at this stage: it depends on the WCR. On a subscription model paid in advance, the WCR is negative and net cash can stay positive; on a model invoiced at 60 days, the overdraft is structural and recapitalisation is required.

Case 3: Service Company (Low fixed assets)#

• Resources: €600k
• Fixed assets: €200k
• FRNG = €400k → well above a services WCR, which is structurally low: net cash is comfortable and the question becomes what to do with it. The FRNG itself is not liquidity, it is a structural balance.

These examples underline the importance of adapting the analysis to the sector, in the direction public statistics actually show: manufacturing industry, whose WCR reaches 38 days of turnover for micro-enterprises and 64 days for other SMEs (Observatoire du financement des entreprises, 2025 report, FIBEN database), calls for a high FRNG; retail and hospitality, with a low or negative WCR, operate with a very low one (Observatoire du financement des entreprises, 2025 report, FIBEN database).

FRNG Positive: Strong Financial Health#

• Meaning: stable resources exceed stable uses, leaving a margin to finance the WCR.
• Benchmark to keep in mind: there is no regulatory threshold. The right level is the one that covers the average WCR of your business, with a margin for seasonality.
• Actions: optimise the WCR before strengthening the FRNG, and set dividends accordingly.

FRNG nil (about 0): precarious balance#

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

FRNG Negative: Read It Against the WCR Before Concluding#

• Causes: Excessive investments without own funds.
• Consequences, when the WCR is positive: the cycle is financed on an overdraft, with the cost of short-term funding, fragility in a downturn and a weakened bank file. Court-ordered reorganisation, by contrast, is opened on cessation of payments, the inability to meet due liabilities with available assets (article L631-1 of the French Commercial Code), not on a negative top-of-balance-sheet figure.
• Remedies: Capital increase, sale of assets, search for investors.

Quick Interpretation Table:

Increase Stable Resources#

1. Capital increase: contributions in cash or in kind. Budget for the legal announcement and the filing with the commercial court registry, plus a contribution auditor (commissaire aux apports), unless an exemption applies: in a SARL or a SAS it requires that each contributed asset is worth €30,000 or less AND that contributions in kind together stay below half of the share capital.
2. Borrowing over one year: long-term financing increases stable resources, unlike an overdraft or a short-term line. Public funding schemes are checked product by product; the term and the conditions are to be checked on the fact sheet of the product concerned, not on a general rule.
3. Retained earnings: allocating profit to reserves rather than dividends increases equity, hence stable resources. Accelerated tax depreciation (account 145, regulated provisions) does not create FRNG: the extra charge reduces profit by the same amount, and the effect is limited to a tax deferral.

Reduce Fixed Assets#

• Operating lease or finance lease for equipment. Location-gérance, by contrast, covers a business or a craft establishment taken as a whole (article L144-1 of the French Commercial Code), not a machine; and finance leases must be restated in the functional balance sheet.
• Sale-leaseback: Sell and re-rent your premises.
• Digitalization: Reduce intangible assets via SaaS.

What the FRNG Does Not Do#

• It does not measure profitability: a highly profitable company can have a low FRNG, and the reverse is true.
• It is not steered through tax: lengthening a depreciation period does not "create" FRNG, it merely shifts the line between depreciation and equity.
• It is a snapshot: measured at the closing date, it says nothing about seasonality. For a seasonal business, a single 31 December figure can flatter a cash position that is tight nine months out of twelve.

Practical tools: a spreadsheet is enough once the functional balance sheet is properly restated. Accounting and reporting software generally produce the functional balance sheet and the intermediate management balances.

• Mixing gross and net: taking fixed assets at net value while leaving depreciation in stable resources. The FRNG is then inflated by the amount of the depreciation.
• Leaving the bank overdraft in financial debts instead of passive cash: the FRNG is artificially improved.
• Ignoring finance leases: a company that funds its machines through leasing without restatement shows an FRNG and a balance sheet total that cannot be compared with an identical company that borrowed.
• Counting marketable securities as financial fixed assets when they belong to current assets or active cash.
• Concluding on the FRNG alone without comparing it to the WCR: it is the gap between the two that produces the cash position.

An illustrative case, built as an example and not taken from a client file. A wholesale SARL (turnover €1.5M) shows an FRNG of -€80,000 after paying cash for a €250,000 machine. The WCR is high, €200,000 of inventories, and the bank position is permanently overdrawn.

The first two levers act on the structure, the third on the cycle. All three improve net cash, but only the third one is free. That is almost always where to start.