# Net Working Capital

## Quick Definition

The difference between current assets and current liabilities, measuring operational liquidity.

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## What is Net Working Capital?

Net Working Capital is the dollar amount of current assets minus current liabilities. Unlike Current Ratio which expresses this as a ratio, Net Working Capital shows the actual liquidity cushion in dollars.

## Why Net Working Capital Matters

Net Working Capital reveals how much buffer you have for operations. A SaaS company with $500K in net working capital can absorb a bad quarter or investment opportunity without external financing.

For ecommerce founders, net working capital often determines growth constraints. If launching a new product requires $200K in inventory and you only have $150K in net working capital, you need financing or must scale back the launch.

## Working Capital Management

Optimizing working capital means balancing receivables, payables, and inventory to maximize the cash available for operations while maintaining healthy supplier and customer relationships.

## Formula

Net Working Capital = Current Assets - Current Liabilities

## Example

Your SaaS company has:

- Current Assets: $800,000
- Current Liabilities: $350,000

Net Working Capital = $800,000 - $350,000 = $450,000

You have $450K in liquid buffer to fund operations, pursue opportunities, or weather unexpected challenges.