Answers the Question
Can we pay off our short-term debts with items that can quickly be turned into cash?
Calculator for Net Working Capital
What Is the Net Working Capital?
Net working capital is a measure of corporate liquidity. The larger the value, the more able a firm is to pay off its current debts quickly and easily.
Firms suffering from a negative net working capital value are deemed to have a working capital deficit.
Why Is it Important?
- The more able a firm is to deal with its short-term debts, the more able it is to take advantage of opportunities that come up and deal with small obstacles that deviate from normal experiences.
Formula(s) to Calculate Net Working Capital
- NET WORKING CAPITAL = CURRENT ASSETS - CURRENT LIABILITIES
- Assuming that just because net working capital looks good, that long term debts are also able to be dealt with efficiently. A firm may be loaded with long-term debt but have significant working capital.