How to Calculate Net Working CapitalĬalculating net working capital isn’t difficult once it’s clear what is being factored into the calculations.

Of all markers of a business’s success, net working capital is perhaps the clearest one, especially when viewed over time or in comparison with other companies in the industry. There are some who believe that a company’s net working capital shouldn’t be too high, though, since a large number of unspent assets could mean that the business isn’t making the most of what it has and pushing as hard as it could be for growth. Whenever possible, a company’s NWC should be greater than zero – otherwise, it means that it’s not able to meet all of its financial obligations, which is a clear sign of a business in trouble.

Net working capital is important because it tells a business’s decision-makers whether or not the business is able to cover all of its expenses. This guide will go over the components of net working capital and how to calculate it using a few different formulas.īut first, it might be useful to take a look at what net working capital is used for and why it’s so important. There are a number of ways to calculate net working capital depending on what the person analyzing the data is looking for. An organization’s net working capital paints a picture of its overall financial health and its being run efficiently. Net working capital (NWC) is an organization’s total short-term assets minus its short-term liabilities.

Working capital formula