Net Working Capital
Net Working Capital is the difference between current assets and current liabilities
- It is also the portion of current assets being financed by long-term funds
- The firm's operating cycle, which is the ongoing transformation of a firm's working capital from cash to inventory to receivables to cash, is an important component of short-term financial management
- The firm's current liabilities include all obligations that will come due and must be paid within one year
- Net working capital is ideally positive, but can be negative
- The more predictable a firm's cash inflows, the less net working capital it needs
- 1994, HarperCollins Publishers