1. What is Net Working Capital?

Net Working Capital (NWC) is a financial metric that measures a company's short-term liquidity by subtracting current liabilities from current assets. It indicates whether a company has enough short-term assets to cover its short-term debts.

2. How Does the Calculator Work?

The calculator uses the Net Working Capital formula:

Where:

• \( Current\ Assets \) — Assets expected to be converted to cash within one year (cash, accounts receivable, inventory)
• \( Current\ Liabilities \) — Debts or obligations due within one year (accounts payable, short-term loans)

Explanation: A positive NWC indicates the company can pay off its short-term liabilities with its short-term assets, while a negative NWC suggests potential liquidity problems.

3. Importance of Net Working Capital

Details: NWC is crucial for assessing a company's operational efficiency and short-term financial health. It helps investors and creditors evaluate the company's ability to meet its short-term obligations without raising additional financing.

4. Using the Calculator

Tips: Enter current assets and current liabilities in the same currency. Both values must be positive numbers. The calculator will compute the difference between them.

5. Frequently Asked Questions (FAQ)

Q1: What is a good NWC ratio?
A: Generally, a ratio between 1.2 and 2.0 is considered healthy, but this varies by industry.

Q2: Can NWC be negative?
A: Yes, negative NWC means current liabilities exceed current assets, which may indicate liquidity problems.

Q3: How is NWC different from working capital ratio?
A: NWC is an absolute amount (assets minus liabilities), while the working capital ratio is assets divided by liabilities.

Q4: What are examples of current assets?
A: Cash, accounts receivable, inventory, marketable securities, and prepaid expenses.

Q5: What are examples of current liabilities?
A: Accounts payable, short-term loans, accrued expenses, and current portions of long-term debt.