Price to net working capital
Price to net working capital is a financial metric that compares a company's closing stock price to its net working capital per share. Net working capital is calculated as the difference between total current assets and total current liabilities, representing the short-term liquidity available to a company to meet its operational needs. This ratio provides insight into how much investors are willing to pay for each unit of net working capital, reflecting the company's operational efficiency and liquidity position.
Price to net working capital = Closing price / Working capital per share
Working capital per share = (Total current assets - Total current liabilities) / Diluted shares outstanding
If Working capital per share is negative, the calculation will be meaningless, and the formula will return an empty value.
A higher price to net working capital ratio may indicate that investors are optimistic about the company's ability to manage its short-term assets and liabilities, suggesting confidence in its operational efficiency and liquidity. Conversely, a low or negative working capital per share can lead to a negligible or empty value for this ratio, which may raise concerns about the company's financial health and ability to cover its short-term obligations. Understanding this metric helps evaluate the relationship between a company's market price and its liquidity.