Net working capital, is the difference between a company’s current assets, such as cash, accounts receivable, inventories of raw materials and finished goods, and its current liabilities, such as accounts payable.
A positive net working capital indicates a company has sufficient funds to meet its current financial obligations and invest in other activities.
Formula to calculate net working capital.
Example:
A company has a total current assets of $ 400,000 while its current liabilities are worth $ 300,000. Determine the company’s net working capital.
Therefore, the company’s net working capital is $ 100,000.
