Net Operating Working Capital Calculator
Table of contents
What is net operating working capital?How to calculate the net operating working capitalFAQsWith this net operating working capital calculator, we aim to help you measure a company's liquidity. You can use our quick ratio calculator and current ratio calculator to understand more about the liquidity of a company.
We have written this article to help you understand what the net operating working capital is and how to calculate the net operating working capital using the NOWC formula. We will also demonstrate some examples to help you understand the calculation.
What is net operating working capital?
Net Operating Working Capital (NOWC) is a financial metric that measures a company's shortterm liquidity by subtracting its current operating liabilities from its current operating assets. You can use our working capital calculator to understand more about this topic.
NOWC is important because it provides insight into a company's ability to meet its shortterm operating expenses. A positive NOWC indicates that a company has enough liquid assets to meet its shortterm liabilities. In contrast, a negative NOWC indicates that a company may struggle to meet its shortterm obligations.
How to calculate the net operating working capital
To understand how to calculate the NOWC calculation, let's take Company Alpha as an example:
 Cash: $1,000
 Accounts receivables: $15,000
 Inventories: $5,000
 Accounts payable: $18,000
 Accrued expenses: $2,000
You can calculate net operating working capital in three steps:

Determine the current operating assets
First, you need to calculate the current operating assets of the company, which include cash and accounts receivable.
current operating assets = cash + accounts receivables + inventories
Hence, Company Alpha's
current operating assets
is$1,000 + $15,000 + $5,000 = $21,000
. 
Compute the current operating liabilities
Second, you need to calculate the current operating liabilities of the company, which include accounts payable and accrued expenses.
current operating liabilities = accounts payable + accrued expenses
The
current operating liabilities
of Company Alpha will be$18,000 + $2,000 = $20,000
. 
Calculate the NOWC by using the net operating working capital formula
The final step is to calculate the NOWC by applying the net operating working capital formula:
NOWC = current operating assets  current operating liabilities
Thus, the
NOWC
for Company Alpha will be$21,000  $20,000 = $1,000
.
Can the net operating working capital be negative?
Yes, negative NOWC is possible and indicates that a company's noninterestbearing current liabilities exceed its current assets, which may suggest shortterm financial difficulties.
How can I calculate the net operating working capital?
You can calculate net operating working capital in three steps:

Determine the current operating assets.

Compute the current operating liabilities.

Apply the net operating working capital formula:
NOWC = current operating assets  current operating liabilities
.
What is the difference between working capital and net operating working capital?
Working capital includes cash and interestbearing debt, while net operating working capital excludes these items and provides a more accurate measure of a company's shortterm liquidity.
Why is NOWC more important than working capital for evaluating a company's shortterm liquidity?
NOWC provides a more accurate picture of a company's liquidity because it excludes cash and interestbearing debt, which are not used to fund a company's operations.
What is the NOWC for $1,000 net operating assets and $700 net operating liabilities?
The net operating working capital (NOWC) will be $300
. You can calculate this by subtracting the net operating liabilities from the net operating assets.