Net working capital
Net working capital is a measurement of the amount of money a certain company has available to grow its business. It is very useful when getting into in depth fundamental analysis of a stock.
Net working capital is very important for small companies looking to expand and for any company that is considered a “growth company”. Companies like Coca-Cola and Johnson and Johnson have pretty much done all the expanding they are going to do. They are worth hundreds of billions of dollars they have a strong international presence with dozens of different products… The net working capital for those companies does not mean very much.
A smaller company, maybe with a market cap between 100 million and 1 billion will need sufficient net working capital to grow its business. How is a business going to grow without having cash and being very liquid financially? The only real way is to borrow to do so and you do not want to invest in a company that is burdening itself with debt, especially a smaller company that is deep in debt.
Net working capital is not as important as the price to earnings ratio or the earnings per share a company has but it is still a great indicator of how much room a company has to grow.