Working Capital (WC)
Also called WC
Working Capital is a measure of a business’s short-term financial health. It is calculating by subtracting Current Liabilities from Current Assets:
💡 Working Capital changes are used to calculate FCF and are important to understand.
Net Working Capital (NWC)
NWC and Working Capital are commonly used interchangeably. Although, NWC often implies a more refined or adjusted figure in a transaction setting. Sometimes it can be used as a negotiating point, if we reduce NWC by x, then we get y type of thing. Not important to know these transaction mechanics for interviewing.
In the room
Working capital changes are the part of free cash flow candidates most often get backwards. Remember the direction: an increase in working capital consumes cash, because you've tied money up in receivables or inventory instead of collecting it.