Change In Net Working Capital

TABLE

Change In Net Working Capital

Change In Net Working Capital

Although the N’WC has gone up for the firm in Table from Rs 75,000 to Rs 1,00,000, that is, by Rs 25,000 or 33.3 per cent between two points of time, there is, in reality, a deterioration in the liquidity position. In the first year, the firm had Rs 4 of current assets for each rupee of current liabilities; but by the end of the second year the amount of current assets for each rupee of current liabilities declined to Rs 2 only, that is, by 10 per cent. For these reasons, NWC is not a satisfactory measure of the liquidity of a firm for inter-firm comparison or for trend analysis.3 A better indicator is the current ratio.

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