Net Working Capital

The Net Working Capital  equation is used to determine the availability of a company's liquid assets by subtracting its current liabilities. It can also be used to estimate the ability of a company to grow quickly. If a company has substantial cash reserves, it may have enough cash to expedite the growth of the business.

The amount of net working capital can be altered  favorably by engaging in any of the following activities:

• Requiring customers to pay within a shorter period of time. This can be difficult when customers are large and powerful.
• Being more active in collecting outstanding accounts receivable.
• Engaging in just-in-time inventory purchases to reduce the inventory investment.
• Returning unused inventory to suppliers in exchange for a restocking fee.
• Extending the number of days before accounts payable are paid.