Definition – What is the Net Working Capital?
Net working capital is current assets less current liabilities. It is a measurement of a firm’s ability to meet a short-term financial obligation.
Formula – How to calculate Net Working Capital
Net Working Capital = Cash and Cash Equivalents + Marketable Investments + Trade Accounts Receivable + Inventory – Accounts Payable
A business has cash & cash equivalents of $1,500, marketable investments of $1,500, trade accounts receivable of $2,500, inventory of $4,500, and trade accounts payable of $3,500.
Net Working Capital = $1,500 + $1,500 + $2,500 + $4,500 – $3,500 = $6,500
Therefore, this business has net working capital of $6,500.