Glossary

Net working capital

Net working capital is current assets minus current liabilities — the cash and near-cash a business has available to meet its short-term obligations.

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AssetsMinus liabilities

Definition

Net working capital is current assets minus current liabilities — the cash and near-cash a business has available to meet its short-term obligations. Positive net working capital means short-term assets cover short-term debts; negative means they may not.

In plain terms

It is the buffer between what you owe within a year and what you have coming in within a year. Too little and you struggle to pay the day-to-day, however profitable you are; the right amount keeps the wheels turning smoothly.

Why it matters

Net working capital is the foundation of every short-term cash decision. Managing it — shortening the cash cycle, funding the gap — is what keeps a business liquid. See working capital explained.