What is a change in net working capital?

A change in net working capital is a result of a change in either the current assets or current liabilities without a similar change in the other figure. The change occurs because the net working capital is calculated as current assets minus current liabilities.

The net working capital is typically used to measure the financial welfare of a company over the short-term. The working capital ratio involves the division of current assets by current liabilities, which may sometimes be referred to as net working capital. A working capital ratio between 1.2 and 2.0 is considered adequate, while a ratio below 1 indicates negative working capital.