Functional balance sheet: what is it and what is it for?

The accounting balance sheet classifies items by liquidity (from least to most liquid on the asset side; from least to most payable on the liability side). It is a legal and fiscal document filed with the court registry.

The functional balance sheet classifies the same items by their economic function within the company’s cycles. It is not a legal document but an internal management tool.

The 3 cycles:

1. Investment cycle: fixed assets (long term).
2. Operating cycle: inventory + accounts receivable − accounts payable (structural short term).
3. Cash cycle: cash − bank overdrafts (volatile short term).

The benefit of the functional balance sheet: understanding the source of financial balance, identifying weaknesses and optimising accordingly.

Working Capital (FR) = Permanent resources − Permanent uses

• Permanent resources = Equity + Long-term financial debt + Provisions
• Permanent uses = Gross fixed assets
• Positive FR means the company finances its fixed assets with long-term resources, leaving a buffer for short-term needs. This is healthy.

Working Capital Requirement (BFR) = Operating current assets − Operating current liabilities

• Operating current assets = Inventory + Accounts receivable
• Operating current liabilities = Accounts payable + Social/tax liabilities from operations
• Positive BFR = short-term financing need (typical for services/industry).
• Negative BFR = financing surplus (typical for B2C retail: cash is collected before paying suppliers).

Net Cash (T) = FR − BFR

• If T > 0: surplus cash (healthy).
• If T < 0: cash strain, requiring overdraft or short-term financing.

SME example:

• FR = €80k, BFR = €60k → T = +€20k (healthy)
• FR = €80k, BFR = €100k → T = -€20k (structural overdraft)