Net Current Assets: Formula, Example and vs NCAV

The net current assets formula

Current assets are the things expected to turn into cash within a year: cash and short-term investments, trade receivables, inventory, and prepaid or other current items. Current liabilities are what falls due in the same period: trade payables, accruals, tax due, short-term borrowings and the portion of debt and lease obligations payable within a year.

The subtraction answers one narrow question: can the company cover its near-term bills out of its near-term assets, with something left over? A positive figure means the short-term assets cover the short-term claims. A negative figure, usually labelled net current liabilities, means they do not.

Nothing below the one-year line is involved. Property, plant, goodwill and other fixed assets are excluded on the asset side, and long-term borrowings, lease liabilities and pension obligations are excluded on the liability side. That exclusion is exactly what makes the measure unsuitable as a valuation test on its own.

Worked example

Take a hypothetical company with this balance sheet (all figures in $ millions):

• Cash and short-term investments: 40
• Receivables: 30
• Inventory: 50
• Other current assets: 5
• Total current assets: 125
• Current liabilities: 45
• Long-term debt, leases and other non-current liabilities: 15
• Total liabilities: 60
• Shares outstanding: 10 million, at $4 a share, so market cap is 40

So the company has 80 of working capital. Its short-term assets cover its short-term obligations roughly 2.8 times over, which is the current ratio expressed another way.

Net current assets vs NCAV vs NNWC

Three measures start from the same current assets and differ in what they subtract. Run all three on the company above and the spread is large:

At a $40 million market cap, the stock trades at 0.50× net current assets, 0.62× NCAV and 1.45× NNWC. The same balance sheet looks like a deep bargain, a modest bargain or no bargain at all depending on which test you apply. The NCAV calculator runs the last two on this balance sheet, which is already filled in.

Where you see the line on a balance sheet

UK statutory accounts show it. Format 1 of the balance sheet formats in Schedule 1 to The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (SI 2008/410) lists item F as "Net current assets (liabilities)", placed after item E, "Creditors: amounts falling due within one year", and followed by item G, "Total assets less current liabilities". Companies using that format print the subtotal, so you read it rather than compute it.

Hong Kong annual reports often show the line too, which the guide to finding net-nets in Japan and Hong Kong covers in more detail.

US filings usually do not. A 10-K balance sheet typically runs total current assets, then total current liabilities, then total liabilities, with no net current assets subtotal in between, so you subtract the two yourself. Statements prepared under IFRS vary: some present a net figure, many do not.

Source: Schedule 1 to SI 2008/410, https://www.legislation.gov.uk/uksi/2008/410/schedule/1, checked October 17, 2026.

Why net current assets is not the net-net test

Treating net current assets as a liquidation value is the most common mistake in deep value screening. Graham's net-net test subtracts all liabilities from current assets, because a buyer of the whole company inherits all of them, not just the ones due this year. Subtracting only current liabilities leaves these claims uncounted:

• Long-term debt. Bonds and term loans maturing beyond a year still have to be repaid or refinanced.
• Pension obligations. A defined-benefit deficit is a real claim, and trustees can demand extra contributions.
• Lease liabilities. Under current standards most leases sit on the balance sheet, and the non-current portion is usually the larger one.
• Deferred tax and provisions. Restructuring, warranty and litigation provisions rank ahead of shareholders.

In the example above the gap between the two measures is 15 on a 125 current-asset base, about 19% of the working-capital figure. For a company with heavy long-term debt or a pension deficit, the gap can swallow the whole cushion and turn an apparent bargain into a negative NCAV.

Negative net current assets

When current liabilities exceed current assets, the balance sheet shows net current liabilities. That can be a warning sign: a company short of liquidity may have to refinance, sell assets or raise equity on bad terms, and the going-concern note in the accounts is worth reading when the figure is negative.

It is not automatically a problem, though. Some business models run on negative working capital by design. Retailers and restaurants collect cash from customers immediately while paying suppliers on 30 or 60 day terms, so payables routinely exceed inventory and receivables; subscription businesses that bill in advance carry large deferred revenue in current liabilities. In those cases negative net current assets reflect how the cash cycle works, not distress. What matters is whether the pattern is stable and funded by operations rather than by short-term borrowing that has to be rolled over.

For net-net screening the distinction is moot: a company with negative net current assets will have a negative NCAV as well, since NCAV subtracts more, so it cannot be a net-net at any price.

Where to go next

Read what net current asset value is for the valuation measure Graham actually used, then NCAV vs net-net working capital for the stricter version that discounts receivables and inventory. The NCAV calculator computes both from a balance sheet you type in.