Define "net working capital."

Net working capital is defined as a measure of a company's short-term financial health, calculated as current assets minus current liabilities. This metric provides insight into a company's ability to cover its short-term obligations with its most liquid assets. A positive net working capital indicates that a company has enough short-term assets to meet its short-term liabilities, which is crucial for smooth operations and financial stability. Conversely, a negative net working capital might signal potential liquidity problems, suggesting that the company may struggle to pay off its debts as they come due.

Understanding net working capital is essential for assessing a company's operational efficiency and short-term financial position. It highlights how well a company can manage its assets and liabilities, making it a vital focus for stakeholders, including management, investors, and creditors. In this context, the calculation involves considering items such as cash, accounts receivable, and inventory (current assets) and accounts payable and other short-term obligations (current liabilities). This definition resonates well with financial analyses and is crucial for strategic decision-making within a business environment.