Net working capital measures a firm's ability to pay its way, or its liquidity. Subtract its current liabilities from its current assets. Current assets are those that can be turned into cash within a year: stocks of finished goods, money owed from customers, and cash. Current liabilities includes outstanding supplier invoices, tax or repayment of loans. If current assets are greater than current liabilities, the firm has positive net working capital. But this doesn't mean it can always meet its liabilities when they fall due. If it can't turn its assets into cash before it has to pay its bills, it may become insolvent. Also, supermarkets tend to have negative net working capital but can easily sell their stock before they have to pay their suppliers.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
-
Six investment funds for beginnersBeginner investors can use funds to start building their portfolio, making it easy to access global trends while managing their risk level. Here’s six funds that beginner investors can consider.
-
Farming isn't for the faint-hearted – and isn't profitableOpinion Farming may look appealing, but turning a profit is extremely hard. No wonder many farmers are attracted to the Sustainable Farming Incentive, says Max King
