Net Working Capital
Key Highlights
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Net Working Capital (NWC) is a simple way to check a company’s financial health by comparing its short-term assets to its short-term debts.
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Net Working Capital = Current Assets − Current Liabilities
What is Net Working Capital?
Net Working Capital (NWC) is a simple way to check a company’s financial health by comparing its short-term assets to its short-term debts. It shows how easily a company can pay its bills and keep things running smoothly.
Formula
Net Working Capital = Current Assets − Current Liabilities
Key Points
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Current Assets: Things like cash, money owed by customers, and inventory that can turn into cash within a year.
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Current Liabilities: These are financial obligations like bills, short-term loans, or other debts that a company needs to pay off within the next 12 months.
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Positive NWC: Means the company has enough to cover its debts, which is a good sign and could mean room for growth.
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Negative NWC: Suggests the company might struggle to pay its bills, which could spell trouble.
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Why It Matters: Helps bosses, investors, and lenders see how well a company manages its money and whether it’s at risk of running dry.
Example
If a company has ₹3,00,000 in assets (like cash and inventory) and ₹2,00,000 in debts, its NWC is ₹1,00,000- showing it’s in decent shape to cover its bills.