Why are cash and debt generally excluded in calculating net working capital (NWC)?

The correct assertion in this context is that cash and debt are excluded from the calculation of net working capital (NWC) because they do not directly generate revenue. NWC is primarily focused on the company's operational liquidity and its ability to cover short-term liabilities with current assets that are operational in nature, such as inventory and accounts receivable.

Cash, while a current asset, represents liquid funds that can be utilized for various purposes and does not specifically relate to the core operational functions of the business. Similarly, debt, particularly short-term liabilities, represents obligations that the company must settle, but they do not contribute directly to the revenue-generating cycle of the business's operations. Thus, both cash and debt are seen as external to the strategic evaluation of working capital needs related to business operations.

This understanding ensures that the assessment of a company's short-term financial health focuses more on the assets that provide operational support rather than on cash or debt, which serve different financial purposes.