Definition of Net Working Capital
Networking capital is the investment in net current assets. Net current assets mean total current assets minus current liabilities. The working capital incorporates operational current assets after setting off the operational current liabilities.
This is a measure to assess the company’s liquidity. A positive net working capital means that the company has its current assets in excess of its current liabilities. It represents that the company’s liquidity health is good and it has sufficient liquid funds to invest somewhere and make a profit.
On the other hand, a negative net working capital means that a company’s current liabilities are more than its current assets. This means that the company is unable to pay its current obligations out of current assets.