What is net working capital? — Answers

2 min read

CA − CLIn pounds

PositiveHealthy

Funds operationsWhat it does

What it means

Net working capital is the pound figure you get by subtracting current liabilities from current assets. It's closely related to working capital — often the same thing — and measures the short-term financial cushion the business has to fund day-to-day trading. The cash conversion cycle then measures how long that capital is tied up.

What this means for your company

Positive net working capital means short-term assets cover short-term debts; negative means a potential squeeze (though some cash-generative models run negative deliberately). Track it monthly and size any shortfall with the working-capital calculator. A recurring gap is best bridged with a revolving facility, not a long-term loan, since the need is short-term by nature.

What it means for you

Credicorp lends to your company, not to you personally, and takes no personal guarantee. See business loans or apply online.

Frequently asked questions

Is net working capital the same as working capital?

In practice, usually yes — both are current assets minus current liabilities. 'Net working capital' just emphasises the resulting pound figure. Some analysts exclude cash or short-term debt for particular purposes, so check the definition being used.

Can negative net working capital be healthy?

For some models, yes — businesses paid instantly but paying suppliers on terms can run negative and let the trade fund itself. For most firms, though, negative working capital is a warning worth investigating.