Net Working Capital is the cash needed to run the business on a day-to-day basis--to maintain inventories and pay expenses.
Calculation: Current Assets less Current Liabilities.
Example: The Round Number CompanyCurrent Assets = 112; Current Liabilities = 36 Net Working Capital = 112 - 36 = 96 |
Net Working Capital does not include machinery, land or buildings (those are Fixed Assets needed to run the business). Rather, it’s the rhythmic needs of the business: inventory building up then being sold, waiting on money to come back in from sales, paying bills, renewing inventories, and starting all over again.
Also called Working Capital.
See also non-Cash Net Working Capital.
See discussion of Working Capital on the Income|Outcome Blog.
term list.