Net working capital

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.

Merryn

Claim 12 issues of MoneyWeek (plus much more) for just £12!

Let MoneyWeek show you how to profit, whatever the outcome of the upcoming general election.

Start your no-obligation trial today and get up to speed on:

  • The latest shifts in the economy…
  • The ongoing Brexit negotiations…
  • The new tax rules…
  • Trump’s protectionist policies…

Plus lots more.

We’ll show you what it all means for your money.

Plus, the moment you begin your trial, we’ll rush you over THREE free investment reports:

‘How to escape the most hated tax in Britain’: Inheritance tax hits many unsuspecting families. Our report tells how to pass on up to £2m of your money to your family without the taxman getting a look in.

‘How to profit from a Trump presidency’: The election of Donald Trump was a watershed moment for the US economy. This report details the sectors our analysts think will boom from Trump’s premiership, and gives specific investments you can buy to profit.

‘Best shares to watch in 2017’: Includes the transcript from our roundtable panel of investment professionals – and 12 tips they’re currently tipping. The report also analyses key assets, including property, oil and the countries whose stock markets currently offer the most value.