What Is a Change in Net Working Capital?


Quick Answer

A change in net working capital is a result of a change in either the current assets or current liabilities without a similar change in the other figure. The change occurs because the net working capital is calculated as current assets minus current liabilities.

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Full Answer

The net working capital is typically used to measure the financial welfare of a company over the short-term. The working capital ratio involves the division of current assets by current liabilities, which may sometimes be referred to as net working capital. A working capital ratio between 1.2 and 2.0 is considered adequate, while a ratio below 1 indicates negative working capital.

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