 Networking capital is the difference between current assets and current liabilities. If current assets are greater than current liabilities, this means that networking capital is positive and firm has enough amount of cash to pay off its current liabilities. And if the networking capital is negative, this means current assets are lesser than the current liabilities. Now the firm would have shortage of cash in order to pay off its liabilities when they become due. As I have said that networking capital is the difference between current assets and current liabilities but if we want to define this term properly, we would say that networking capital is the amount financed by shareholders or owners to finance the operating cycle activities in a business concern. A positive networking capital shows a good sign for the firm. This means that firm has enough resources to pay off its liabilities but this another means that investment from fixed assets have been transferred to current assets. Now the firm has been succeeded in improving its liquidity but on the other hand as the cash has been transferred from fixed assets to current assets, the firm may have suffered on account of certain profitability amount. This means that there is a relationship between liquidity and profitability and this relationship is of inverse nature. Means that higher the liquidity, lesser would be the profitability but if a networking capital is negative, this means that firm's liquidity has been disturbed but this other means that from longer term resources or longer term debt, funds have been flown to the current liabilities. Now this may again create a problem for the firm because long term funds when transferred to current liabilities may not be available for the firm to earn enough return on such funds to provide returns back to their providers. So a firm has to create a balance between long term funds and short term funds between long term assets and short term assets so that firm's liquidity and profitability may not be disbalanced. When we talk about networking capital it is important to note that for growing firm networking capital is generally a positive value because for the growing firm the firms continuously need to invest in their current assets so these types of firms have generally positive networking capital. To understand networking capital in terms of the change, we can see an example on the screen. We use current assets and current liabilities for two years 2015 and 2014. We see that for the year 2015 the networking capital is $275 million and for 2014 the networking capital is $252 million. The net change over the period is $23 million so this is called as change in networking capital. There is a difference between networking capital and cash flows. Both may not be the same. For example, if a firm sells its inventory in exchange for cash there is a cash flow to the firm but there is no change in the current assets so there would be no change in the networking capital. So it is important to understand the difference between networking capital and cash flows.