Net working capital (NWC) is a financial metric that measures a companys short-term financial health by comparing its current assets to its current liabilities. It is the amount of operating liquidity available to a business, organization, or other entity, including governmental entities. NWC is used to gauge the short-term liquidity of a business and its ability to pay off short-term liabilities. It is also a measure of a companys operational efficiency and its ability to meet short-term obligations and fund operations of the business.

The formula for calculating NWC is:

NWC = Current Assets - Current Liabilities

Current assets include resources that can be liquidated within one year, such as cash, checking and savings accounts, stocks and bonds, accounts receivable, and inventory. Current liabilities include debts and accounts payable. A positive NWC indicates that a company has enough liquidity to continue its operations and satisfy both maturing short-term debt and upcoming operational expenses.

NWC is important because it is necessary for businesses to remain solvent. A company could become bankrupt even if it is profitable because it cannot rely on paper profits to pay its bills. If a company has substantial positive NWC, then it could have the potential to invest in expansion and grow the company. Conversely, a tight working capital situation makes it quite unlikely that a business has the financial means to accelerate its rate of growth.

In summary, net working capital is a financial metric that measures a companys short-term financial health by comparing its current assets to its current liabilities. It is used to gauge the short-term liquidity of a business and its ability to pay off short-term liabilities.