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What is a good value for net working capital (NWC)?
NWC is calculated by subtracting current liabilities from current assets.
A negative value means you will have a shortfall of cash, and unless something drastic is done (like securing short-term loans), you will not be able to continue as you are.
Although no hard-and-fast rules exist, a guideline is if you maintain an NWC > 25% of annual revenues, you are being overly conservative with respect to “hoarding” cash (unless of course you have a specific reason to keep the cash, e.g., to do a cash acquisition). If you maintain an NWC < 10% of annual revenues, you might be putting the company into a dangerous situation. But these are not absolutes!
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