Net current assets, also known as working capital, is an important financial metric when evaluating a company's financial health. Net current assets is calculated as current assets minus current liabilities,
Net Current Assets
The metric allows investors and analysts to see if current assets are greater than current liabilities, which is a positive standing. If current assets are greater, then it indicates that the company has enough assets to pay for its obligations. By showing it has positive net current assets, a company underlines the fact that it is liquid and operating efficiently, signifying that it can invest, grow, and take on more debt if need be. Having negative net current assets would indicate that a company is in financial difficulty and would have a hard time meeting its obligations.
Calculating Net Current Assets in Excel
Calculate Current Assets
Current assets consist of assets that can quickly be converted to cash. They include cash, cash equivalents, accounts receivables, and marketable securities. They can and cannot include inventories, as inventory takes time to sell. Current assets is usually a line item on a balance sheet and typically does not need to be calculated.
In Excel, you would place "Current Assets" in cell A1. In cell B1, you would enter the value of current assets.
Calculate Current Liabilities
Current liabilities consist of a company's financial obligations that are due within a year. Current liabilities include short-term debt, accounts payable, dividends payable, and taxes due within a year. Similarly to current assets, current liabilities is a standalone line item on a balance sheet.
To enter current liabilities in Excel for the purpose of calculating net current assets, you would enter "Current Liabilities" in cell A2. You would then enter the value of current liabilities in cell B2.
Calculate Net Current Assets
To reach the final calculation for net current assets, in cell A3, enter "Net Current Assets" and in cell B3 enter "=B1-B2" to arrive at net current assets.
Once having the value for net current assets, you can now analyze whether the company appears to be in good or poor financial health. If your calculation results in a positive number, you know that the company has a positive working capital and should be able to meet its short-term debt obligations. If the calculation results in a negative number, whereby current liabilities exceed current assets, the company may run into problems paying back creditors in the short term.
The Bottom Line
Net current assets is only one of many financial metrics to determine whether a company is performing well or poorly and should be taken into consideration with other ratios to gain a full understanding of a company's financial standing. It is, however, an important metric that sheds light on a company's liquidity and ability to meet its short-term debt. It is a simple formula that can easily be calculated in Excel with information quickly received from a firm's balance sheet.