1. What is Net Working Capital?

Net Working Capital (NWC) is a measure of a company's liquidity and short-term financial health. It represents the difference between current assets and current liabilities, showing how much short-term resources the company has available to fund its day-to-day operations.

2. How Does the Calculator Work?

The calculator uses the simple NWC formula:

Where:

• \( Current\ Assets \) — Assets expected to be converted to cash within one year (cash, accounts receivable, inventory, etc.)
• \( Current\ Liabilities \) — Obligations due within one year (accounts payable, short-term debt, etc.)

Explanation: A positive NWC indicates the company can cover its short-term liabilities with its short-term assets, while a negative NWC suggests potential liquidity problems.

3. Importance of Working Capital

Details: Working capital is crucial for assessing a company's operational efficiency and short-term financial health. It helps businesses ensure they have enough liquidity to meet short-term obligations and fund ongoing operations.

4. Using the Calculator

Tips: Enter current assets and current liabilities in dollars. Both values must be positive numbers. The calculator will show the net working capital in dollars.

5. Frequently Asked Questions (FAQ)

Q1: What is a good working capital ratio?
A: Generally, a ratio between 1.2 and 2.0 is considered healthy, indicating sufficient current assets to cover liabilities with some buffer.

Q2: Can working capital be negative?
A: Yes, negative working capital means current liabilities exceed current assets, which may indicate liquidity problems unless the business has a very fast inventory turnover.

Q3: How often should working capital be calculated?
A: Businesses should monitor working capital regularly, typically monthly or quarterly, to maintain healthy cash flow.

Q4: What's the difference between working capital and cash flow?
A: Working capital is a snapshot of current assets vs liabilities, while cash flow measures the movement of cash in and out over time.

Q5: How can a company improve its working capital?
A: Strategies include collecting receivables faster, managing inventory efficiently, negotiating better payment terms with suppliers, or obtaining short-term financing.