CA Intermediate · Financial Management and Strategic Management · Introduction to Working Capital Management
Which of the following is the correct formula for Net Working Capital (NWC)?
Net working capital equals current assets minus current liabilities. It shows the portion of current assets financed by long-term sources and indicates short-term liquidity. Formulas using fixed assets, total assets or only inventory do not measure working capital as defined in financial management.
- ACurrent assets minus current liabilitiesCorrect
- BFixed assets minus long-term liabilities
- CTotal assets minus shareholders' funds
- DCurrent liabilities minus inventory
Explanation
Net working capital is the excess of current assets over current liabilities. The other options mix in fixed assets, total assets or only part of current assets, none of which define NWC.
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