Series 3: 7.3.5.2. Adjusted Net Capital

7.3.5.2. Adjusted Net Capital

Net capital is the excess of current assets over liabilities. Assets are what a firm owns. Current assets are cash and other assets that can be converted to cash or sold within the next 12 months. Liabilities are what a firm owes to outsiders.

Certain liabilities are not included in the net capital calculation. Subordinated debt, for example, is debt that ranks below other debt in its claim on assets or earnings. It is the last kind of debt to be paid back to investors if the firm is forced to liquidate. Certain deferred income tax liabilities and certain long-term debt on plant and property are also excluded.

Adjusted net capital is net capital less “charges against capital.”

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