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.

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.

Most Popular

Bank of England hikes key interest rate to 4.25%
UK Economy

Bank of England hikes key interest rate to 4.25%

The Bank of England raised rates by 0.25% following a surprise jump in inflation.
23 Mar 2023
Will energy prices go down in 2023?
Personal finance

Will energy prices go down in 2023?

Ofgem’s price cap is now predicted to fall below £2,000, based on average typical use, from July, for the first time since 2022. We have all the detai…
21 Mar 2023
When will interest rates go up?
UK Economy

When will interest rates go up?

The Bank of England raised rates to 4.25%, its 11th consecutive increase. Does the base rate have further to go?
23 Mar 2023