Net Working Capital

Net Working Capital.webp

Key Highlights

  • 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.

  • 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

  • Current Assets: Things like cash, money owed by customers, and inventory that can turn into cash within a year.

  • 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.

  • Positive NWC: Means the company has enough to cover its debts, which is a good sign and could mean room for growth.

  • Negative NWC: Suggests the company might struggle to pay its bills, which could spell trouble.

  • 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.