CandleFocus

Working Capital (NWC)

Candlefocus Editor
Working capital (NWC), also referred to as net working capital, is an indication of a company’s liquidity and short-term financial health. It is calculated by subtracting current liabilities from current assets. Current liabilities are defined as liabilities that must be paid off within one year, whereas current assets are resources that will be used or sold within one year. Examples of current assets include cash and cash equivalents, accounts receivable and inventory, while examples of current liabilities include accounts payable, taxes payable, wages, payroll taxes and accrued expenses.

A company with a positive working capital has more current assets than liabilities and it is able to finance its daily operations, invest in future growth and improvements, and create a buffer against potential losses. In contrast, a company with a negative working capital has more current liabilities than assets, meaning it is unable to fund its daily operations from liquid sources.

Having too much working capital can be detrimental to a company's financial health, since it means there is excess capital that is not being utilized for growth or other investments. Companies should take care to ensure that they are using their capital efficiently and productively to ensure the long-term health of the company.

Overall, working capital is an important metric used to measure a company's liquidity and near-term financial health. Companies should ensure they are not holding too much or too little working capital, and they should strive to maintain a balance that allows them to fund their daily operations, invest in future growth and opportunities, and create a buffer against potential losses.

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