Vareto Finance Glossary
Net Working Capital
Description
Net Working Capital can be calculated as Current Assets - Current Liabilities. Some of the commonly included line items in its calculation are assets that can be easily liquidated into cash within a year, such as cash, accounts receivable, prepaid expenses, etc., and short-term debts that can be repaid within a year, such as rent, payroll, utilities, etc.
Example
Net Working Capital can be calculated as Current Assets - Current Liabilities. Some of the commonly included line items in its calculation are assets that can be easily liquidated into cash within a year, such as cash, accounts receivable, prepaid expenses, etc., and short-term debts that can be repaid within a year, such as rent, payroll, utilities, etc.
Why it matters
Net working capital offers insight into a company's financial health by reflecting its liquidity position.
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