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 NWC formula:

Where:

• Current Assets — Cash and other assets expected to be converted to cash within one year
• Current Liabilities — Debts and obligations due within one year

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

3. Importance of NWC Calculation

Details: NWC is crucial for assessing a company's operational efficiency and short-term financial health. It helps investors and creditors evaluate liquidity risk and management effectiveness.

4. Using the Calculator

Tips: Enter current assets and current liabilities in your preferred currency. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's a good NWC value?
A: It varies by industry, but generally a positive NWC is desirable. However, too high NWC might indicate inefficient use of resources.

Q2: How does NWC differ from working capital ratio?
A: NWC is an absolute amount (current assets - current liabilities), while the working capital ratio is current assets divided by current liabilities.

Q3: Can NWC be negative?
A: Yes, negative NWC means current liabilities exceed current assets, which might indicate liquidity problems unless the business has strong cash flow.

Q4: What's included in current assets?
A: Cash, accounts receivable, inventory, marketable securities, prepaid expenses, and other liquid assets expected to convert to cash within a year.

Q5: What's included in current liabilities?
A: Accounts payable, short-term debt, accrued liabilities, and other obligations due within one year.