Result
Net working capital
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This calculation is for informational purposes only and does not replace advice from a qualified professional. Formulas and rates may not fit your exact situation — double-check the figures before making decisions.
How it is calculated
Net working capital = inventory + accounts receivable − accounts payable. It's the cash a business specifically holds in its operating cycle — tied up in stock and in customer payment terms, partly offset by financing from supplier payment terms.
This is the narrower, "operating" definition of working capital — as opposed to the broader version (all current assets minus all current liabilities, including cash and short-term loans) used, for example, in the current ratio calculation. The operating definition more precisely captures the financing need of the buy → sell → get paid cycle.
A growing business almost always needs growing working capital — more sales mean more inventory and more receivables, even when the business is profitable. That's a common reason fast-growing companies run short of cash: there's profit on paper, but not enough free cash for the next round of growth, because the previous round of growth already absorbed it into working capital.