Definition

Net working capital is the remainder of a company's current assets less current liabilities. The more a company's net working capital, the better positioned it is to cover its current obligations.

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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