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Ajay Mady

What is the formula to calculate net current assets?

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1 Answer

  1. This answer was edited.

    Meaning of Net Current Assets

    In simple terms, Net Current Assets refers to the total amount of current assets excluding the total amount of current liabilities in a business. It can also be referred to as Net Working Capital.

    The Net Current Assets can have a positive or a negative value, wherein the two are an indicator of the well-being of a business. In case the current assets are greater than the current liabilities, the company possesses sufficient assets to pay off its indebtedness and is operating efficiently. However, a company is said to be facing financial difficulty and is not in a position to pay off its debts, when the value of net current assets is negative.

    The formula is as follows:

    Formula

    Difference between Net Current Assets and Current Assets

    Net Current Assets refers to the difference between the total amount of current assets and the total amount of current liabilities whereas Current Assets are a subpart of Net Current Assets and refer to those assets that are expected to be utilized, depreciated or traded through the operations of a business within the same financial year.

    For example, cash and cash equivalents, inventory, accounts receivable, etc are Current Assets whereas the summation of the same minus the total of current liabilities is termed as Net Current Assets which is further explained through an example given below.

    Numerical Example

    Calculate the Net Current Assets of ABC Ltd.

    (Extract of Balance Sheet)

    PARTICULARSAMOUNT
    CURRENT ASSETS
    Cash and Cash Equivalents2,00,000
    Accounts Receivables40,000
    Stock Inventory15,000
    Marketable Securities35,000
    Prepaid Expenses6,000
    TOTAL CURRENT ASSETS2,96,000
    CURRENT LIABILITIES
    Accounts Payable15,000
    Accrued Expense2,000
    Unearned Revenue20,000
    Taxes Payable40,000
    Short-term Debt10,000
    Interest Payable6,000
    TOTAL CURRENT LIABILITIES93,000

    Solution:

    Total current assets = 2,96,000

    Total current liabilities= 93,000

    Net Current Assets = Total Current Assets – Total Current Liabilities

    = 2,96,000- 93,000  = 2,03,000

    Key Takeaways

    • Net Current Assets are also known as Net Working Capital.
    • Net Current Assets is the difference between the total current assets and total current liabilities.
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