Working Capital, net working capital, or NWC — are all words for the difference between a company’s current assets and current liabilities. Essentially, it’s the cash a company can safely spend. If there is such a thing, right?
Assets are things of value that you own, such as cash, property, or equipment. And liabilities are things that you owe, for example, debt or taxes. When you subtract a company’s liabilities from its assets, you get a good indicator of a company’s short-term financial health. Working Capital is the money used to pay short-term expenses, and the available funds to meet our future needs. This is why it is a good view of a company’s health, because it's essential that a company has the money necessary to pay off debt that is coming due.
This is a foundational concept employees need to understand - how to run a more cash efficient organization, or as we like to say, a cash culture. That’s how a greater understanding of business acumen can work for you, your employees and your business.
For example...
Remember Blockbuster? The old video store we would go to for our at home movie nights? In 2004, their cash from operations was $1.2 billion dollars and in 2005, dropped to $701 million. I know, $701 million dollars sounds like a lot, but when you’re now getting half the amount of money you were from last year, it feels quite low. This cut in cash was largely from an increase in Blockbuster’s Working Capital. See how crucial having cash on hand, ie. working capital is? It can make you go from a profitable company, to bankrupt in less than a year. You want your employees engaged in optimizing your company’s working capital. What your employees need is business acumen. What did Blockbuster’s employees need? Business Acumen.
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