Nov 17, 2021

What is Amazon Net Working Capital?

unybrands Snapshots provide quick reads giving you an overview of all important information you may need to know about a topic related to the e-commerce ecosystem. Whether it’s a definition of a commonly used term, or a pros and cons list, we’ll paint the full picture for you.

Let’s jump in: Net working capital (NWC) is the difference between current assets and current liabilities of a business. NWC is a financial metric which represents a business’ liquidity and can be used as a proxy for short-term financial health. NWC highlights how much money a business has to cover its current day to day obligations without heading into debt.

Formula to Calculate Net Working Capital:

Net Working Capital = (Cash and Cash Equivalents) + (Marketable Investments) + (Trade Accounts Receivable) + (Inventory) – (Trade Accounts Payable)


Net Working Capital = (Current Assets) – (Current Liabilities)

Current assets are short-term assets taken from the balance sheet which include inventory, accounts receivable, money market funds, short-term government bonds, commercial paper, etc. Current liabilities, on the other hand, are short-term obligations such as short-term loans, lines of credit, accounts payable, credit card debt, etc.

As an Amazon FBA seller, it’s important to understand what Amazon’s NWC is, and how this could potentially impact your brand. We’ll break down the different components of NWC and why you should care.

To start, let’s dive into what Amazon’s NWC actually is. According to FinBox, Amazon’s net working capital at the end of Q3 2021 was $(50) billion. Don’t be concerned by the negative number - Amazon, Microsoft, Google, and Tesla all operate with a negative net working capital - and it actually provides two significant operational advantages. As Amazon’s business grows, its NWC will generate cash flow for the business. This shrinks the total capital in the business, therefore enhancing Amazon’s return on capital and reduces the outside funding required for growth.

In financial terms, the e-commerce powerhouse functions on a negative cash conversion cycle. Amazon collects money from its customers first, before paying out its suppliers. The amount of current liabilities are greater than the current assets because of the timing component of its supplier payments (i.e money is coming into the business through customer sales before Amazon’s payments for the underlying goods is required). This phenomenon results in the negative net working capital amount, and is seen by many other rapidly growing marketplace/software businesses. Amazon will continue to benefit from this model as long as the business continues to grow.

Importance of Amazon Net Working Capital for Sellers:

NWC provides an idea of your business’ liquidity, and whether the company is financially stable enough to cover its short term obligations. It’s beneficial for sellers to look at both quarterly and annual NWC trends to fully understand the financial health of your business and identify what levers can be pulled to improve.

Let’s take a look at Amazon specifically to provide a frame of reference: Over the past 5 years, Amazon’s NWC has ranged from $(19) billion in Q4 2016 to $(61) billion in Q4 2020. Most recently, the company’s NWC has been growing increasingly negative, which highlights a positive trend for the business and sellers alike as it means growth is accelerating. This is great news for you as a seller, and for us as buyers!

At the end of the day, Amazon’s negative cash conversion cycle is a testament to the growth of the business, including the 3rd party marketplace, providing advantages for businesses such as yours. With rapid and consistent growth on Amazon, you as an Amazon seller continue to have the capacity to grow and your business to thrive. The sky's the limit.

Have more questions? Contact us and one of our experts will see how this applies specifically to your business!

How Do I Know I’m Ready to Sell My Business?

There is no one formula for when to sell your business – it goes on a case by case basis. That being said, by taking a 360-look at your brand, and your personal feelings towards your growth, you’ll end up making the right decision for you. Also, asking yourself few questions can be helpful in steering you in the right direction.


What is Amazon Net Working Capital?

As an Amazon FBA seller, it’s important to understand what Amazon’s NWC is, and how this could potentially impact your brand. Read about the different components of NWC and why you should care.


Information on E-Commerce Startup Funding Options

Many online retailers look for e-commerce funding to cover costs of inventory, shipping, storage, marketing, employee wages, and any tech that is needed for operations. Because companies may not have enough disposable cash flow prior to attaining revenue, it’s pivotal to get funding. Check ways in which your ecommerce startup business can get funding.


How to Value and List an eCommerce Business for Sale

Selling an e-commerce business is a little different from selling a physical brick-and-mortar store. Let’s look into how you can easily sell your e-commerce business in 6 easy steps.


How To Sell My Online Business in 2021

Selling an e-commerce business is a unique experience, differing significantly from selling a retail one. Companies around the globe have invested tremendous resources to enhance their e-commerce presence. Unlike brick-and-mortar stores, e-commerce offers endless opportunities to generate new revenue streams; from accessing an international pool of customers at any time of the day or night. As a result, investor interest in e-commerce businesses has increased significantly over the last decade.


How to List Your Shopify Store on Sale

A dream destination for anyone looking to start or run their business efficiently, Shopify is a leading eCommerce platform. Since its inception, it has enabled more than 500,000 merchants to create enticing online storefronts for their businesses, while providing customers with a streamlined and improved shopping experience.


How to Choose Your Online Selling Platform

Choosing where your internet niche is difficult, but following this guide will help you take the guesswork out of it and make your life a little easier. While selling online can be complicated at times, it is exciting and fulfilling to create something of your own and succeed in doing so


Buying & Selling On Shopify Exchange Marketplace

Buying and selling on the Shopify Exchange Marketplace can be easy when done correctly. If you're ready, take your entrepreneurial spirit over to the marketplace and see what you can find today. Your next adventure is just a couple steps away.


How to Sell a Turnkey Business

Turnkey businesses are businesses and brands that are ready to make sales on day one. All the buyer has to do is maintain current operations ensure sales are being generated. Let’s review the initial and pivotal steps you should follow before listing your turnkey business in order to best capitalize on your sale.


How to Calculate an Amazon Business's Valuation

While the value of your Amazon business gets based on a couple of factors, fortunately, you can control most of them. If your valuation does not come in as high as you want, work on the factors that determine the multiple and reduce the risk for a buyer because that will ultimately net you more money.


Guide To Selling Your Amazon FBA Business And Its Worth

Has your FBA brand grown beyond the size you are able to manage? Whether it’s that, or you’re simply looking to embark on a new journey, you really don’t have to be an expert in FBA to start thinking about your exit strategy.


A Look Into the First Month as an Investments Senior Associate at unybrands

The Investments & Integration team can provide a platform to springboard all team members into a leadership position at the pace one is willing to grow.


Korion Morris on Joining unybrands

unybrands is uniquely positioned to win in the space


Selling your online business: Eugen Miropolski on unybrands as your best partner

We have extensive financial resources and never make it complicated for entrepreneurs. In fact, everything we do we base on the perspective of our partners.


Is your online business for sale?

Supply chain optimization can be as simple as you want it to be—or as complicated as you make it out to be.


Nicole Wang on German and American aggregators working with Chinese manufacturers

Having assembled deep domain expertise in e-commerce, our strategy is to scale microbrands around various market segments.