What is net working capital?

Net working capital is defined as the excess of current assets over current liabilities. This measure is crucial for assessing a company's short-term financial health and operational efficiency. It indicates the liquidity position of a business, showing how easily it can meet its short-term obligations with its short-term assets.

When current assets exceed current liabilities, it suggests that the company has enough resources to cover its short-term debts, which is a positive sign for creditors and investors. A positive net working capital is often associated with a company's ability to invest in new opportunities, pay off debts, and maintain smooth operations.

Understanding net working capital is essential for financial analysis as it reveals insights into the working capital management of a company, reflecting its capability to maintain surplus funds for operational needs.