What is Net Working Capital?
Net working capital (NWC) is the difference between a company’s current assets and its current liabilities. It measures the short-term liquidity available to fund day-to-day operations. Positive NWC means current assets cover current liabilities with a buffer; negative NWC signals possible liquidity pressure.
How It Works
- Total current assets: cash, receivables, inventory, and other items expected to convert to cash within 12 months.
- Total current liabilities: payables, short-term debt, accrued expenses, and the current portion of long-term debt.
- Subtract current liabilities from current assets to get NWC.
- Monitor NWC as a percentage of revenue or in days to track working capital efficiency.
Saudi Context
Saudi SMEs and corporates monitor NWC closely, especially under Fatoora e-invoicing which has tightened cash flow timing. SAMA-supervised banks evaluate NWC trends when extending working capital lines, and Vision 2030 fast-growth companies often see NWC swing significantly with scale.
Example
A Riyadh retailer has SAR 25 million in current assets and SAR 18 million in current liabilities. NWC is SAR 7 million, equivalent to about 35 days of revenue, which the CFO targets to keep stable as the company expands.