Overview

Net working capital (NWC) is the difference between a company's current assets and current liabilities on its balance sheet. It measures how liquid a company is and whether it is able to meet short-term obligations and fund the daily operations. Ideally, a company should have a positive net working capital balance in order to maintain its financial health. Net working capital can be calculated in different ways, depending on a company's definition of NWC and which items it wishes to include or exclude. Below are three different formulas for calculating NWC:

Net Working Capital = Current Assets - Current Liabilities or Net Working Capital = (Current Assets - Cash) - (Current Liabilities - Debt)

or

Net Working Capital = Accounts Receivable + Inventory - Accounts Payable

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