What is Net Working Capital?
Nexa Consultancy | Startup & Finance Glossary
Net Working Capital is the difference between a company's current assets and its current liabilities. It is a key measure of a company's short-term liquidity, operational efficiency, and overall financial health. A positive net working capital indicates that a company has enough short-term assets to cover its short-term liabilities.
For Startups: Managing net working capital is crucial for a startup's survival. A startup with insufficient working capital may struggle to pay its suppliers, employees, and other short-term debts, leading to a liquidity crisis. A virtual CFO closely monitors the components of working capital (receivables, payables, inventory) to optimize cash flow.
Calculation: Net Working Capital = Current Assets - Current Liabilities.
Example: A company with current assets of ₹80 Lakhs and current liabilities of ₹50 Lakhs has a net working capital of ₹30 Lakhs.