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What is Net Working Capital?

What is Net Working Capital?

Introduction

Working capital also called net working capital, measures a company's financial security. According to Jensen and Meckling, authors of the new famous Theory of the Firm (1976), the components of working capital measure the firm's shareholder value. Working capital helps evaluate a company's short-term health, liquidity, and ability to invest and grow its operations. Working capital is defined as current assets less current liabilities. Current assets often include cash, accounts receivable, customer unpaid bills, and inventory, with current liabilities encompassing accounts payable and short-term debts, to name a few.

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