Final answer:
Net operating working capital is current assets minus the difference of current liabilities and notes payable, signifying a firm's short-term financial health and operational liquidity. It is similar to bank capital, which represents a bank's net worth and is regulated to ensure a bank's solvency and protection for depositors and creditors.
Step-by-step explanation:
Net operating working capital is an important financial metric for firms, capturing the liquidity and operational efficiency by assessing short-term financial health. It is defined as current assets minus the difference between current liabilities and notes payable. In essence, it represents the operating liquidity available to a business after accounting for the obligations that are due in the short term, with the exclusion of any short-term debt such as notes payable. This concept is closely related to a firm's net worth on its balance sheet, typically presented in a T-account format, where assets are listed on one side and liabilities plus net worth on the other. The concept of net operating working capital is similar to that of bank capital, which signifies a bank's net worth, calculated as the total assets minus total liabilities. Regulation mandates that banks maintain a minimum level of net worth relative to their assets to ensure solvency and protect stakeholders, offering a buffer against uncertainties.