Net working capital
Net working capital is the difference between long-term sources of financing (long-term liabilities and equity) and fixed assets in the Balance Sheet. If the net working capital is positive, it represents a part of working capital financed from long-term sources.
Negative net working capital indicates disturbances in the company’s operations, which can lead to illiquidity and losses on the income statement.
Golden balance rule: long-term financial balance is achieved if the firm covers fixed assets and a significant part of current assets from long-term sources.
– Fixed assets can consist of: land, facilities, equipment, forests, perennial crops, basic livestock, concessions, patents, licenses, advances and long-term financial investments.
– Current assets consist of: inventories (materials, work in progress, semi-finished and finished products in stock), advances given for inventories, short-term receivables and placements, with maturity, ie sales up to one year from the balance sheet date, cash and cash equivalents, tax value added and accruals (prepaid expenses and accrued but uncollected income).