Ever wondered what is net working capital? Simply put, it’s the cash you have left after you pay short-term bills. Think of it as your day‑to‑day money meter, showing if you’ve got enough to keep things running smoothly.
Net working capital shows your business’s short‑term health. Positive net working capital means you can cover bills and keep growing. If it slips into negative, you might struggle to pay suppliers or staff on time.
Current Assets – Current Liabilities = Net Working Capital
Current assets are things like cash, inventory, and invoices you’ll collect soon. Current liabilities are bills, loans, or wages due in the next year.
Here’s how to calculate :
List your current assets (cash, stock, receivables).
List your current liabilities (bills, short‑term debts).
Plug numbers into the net working capital formula above
If you end up with a positive number, congrats! You’ve got a safety cushion. If it’s negative, it’s time to tighten up.
Speed up customer payments by sending invoices quickly.
Negotiate longer payment terms with suppliers.
Keep a close eye on stock levels to avoid tying up cash, and watch your profit margins for hidden gains
With healthy net working capital, you’ll breeze through daily costs and plan for new opportunities with no sweat!
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