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Net Working Capital
The difference between current assets and current liabilities, measuring operational liquidity.
Formula
Net Working Capital = Current Assets - Current Liabilities
Definition
What is Net Working Capital?
Net Working Capital is the dollar amount of current assets minus current liabilities. Unlike Current Ratio which expresses this as a ratio, Net Working Capital shows the actual liquidity cushion in dollars.
Why Net Working Capital Matters
Net Working Capital reveals how much buffer you have for operations. A SaaS company with $500K in net working capital can absorb a bad quarter or investment opportunity without external financing.
For ecommerce founders, net working capital often determines growth constraints. If launching a new product requires $200K in inventory and you only have $150K in net working capital, you need financing or must scale back the launch.
Working Capital Management
Optimizing working capital means balancing receivables, payables, and inventory to maximize the cash available for operations while maintaining healthy supplier and customer relationships.
Example
Your SaaS company has:
- Current Assets: $800,000
- Current Liabilities: $350,000
Net Working Capital = $800,000 - $350,000 = $450,000
You have $450K in liquid buffer to fund operations, pursue opportunities, or weather unexpected challenges.
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