Working Capital Calculator

Calculate working capital, current ratio, and quick ratio to assess your business's short-term financial health and liquidity. Lenders and investors review these ratios during due diligence.

📊 Finance💼 Working Capital = Current Assets - Current Liabilities
Cash and cash equivalents ($)
Accounts receivable ($)
Inventory ($)
Accounts payable ($)
Short-term loans / current portion of debt ($)
Accrued liabilities ($)
Please enter valid values.

Formula & Reference

VariableFormulaUnits
Working Capital CalculatorWorking Capital = Current Assets - Current Liabilities$

Step-by-Step Examples

Example 1
Healthy SMB

Cash $50k, AR $80k, Inventory $30k, AP $40k, STD $20k, Accruals $15k.

  • Current assets: $160k | Liabilities: $75k
  • Working capital: $85k
  • Current ratio: 2.13x | Quick ratio: 1.73x
✓ WC $85k, current ratio 2.1x - healthy
Example 2
Tight Liquidity

Cash $15k, AR $40k, Inventory $60k, AP $50k, STD $30k, Accruals $20k.

  • Assets: $115k | Liabilities: $100k
  • Working capital: $15k
  • Current ratio: 1.15x - concerning; quick ratio: 0.55x - concerning
  • Quick ratio below 1 means can't meet obligations without selling inventory
✓ WC $15k, quick ratio 0.55x - concerning
Example 3
Negative Working Capital

Fast-food / subscription model: collect cash before paying suppliers.

  • Some business models run negative WC profitably (Amazon, McDonald's)
  • Low receivables, high payables = using supplier credit as free financing
  • Context matters for negative WC assessment
✓ Negative WC can be ok in certain models

Real-World Applications

🏦
Bank Financing
Lenders require minimum current ratio covenants, typically 1.2-2.0x.
💰
Investors
Working capital analysis reveals cash management efficiency and solvency risk.
📊
Financial Planning
Track working capital monthly to anticipate liquidity crunches.
💼
M&A Due Diligence
Target working capital is a key negotiation point in acquisitions.

Common Mistakes to Avoid

⚠️
Ignoring the quick ratio when inventory is high

Current ratio includes inventory, which may not be quickly liquidable. Quick ratio (excluding inventory) shows if you can meet obligations from truly liquid assets.

⚠️
Treating negative working capital as always bad

Some high-efficiency businesses (subscription, retail with fast turns) profitably operate with negative working capital by leveraging supplier payment terms.

⚠️
Not managing accounts receivable aging

Old AR that hasn't been collected is counted in working capital but may be uncollectible. Review AR aging report monthly to ensure quality of receivables.

Frequently Asked Questions

What is working capital? ▾
Current assets minus current liabilities. Represents the net liquidity available to fund day-to-day business operations. Positive = more assets than near-term obligations.
What is a good current ratio? ▾
1.5-3.0x for most businesses. Below 1.0x means current liabilities exceed current assets - a potential solvency risk. Above 3.0x may indicate underdeployed capital.
What is the quick ratio and why does it matter? ▾
Quick ratio = (Cash + Receivables) / Current Liabilities. Excludes inventory, which may not convert quickly to cash. Below 1.0x signals potential inability to meet short-term obligations.
How do I improve working capital? ▾
Collect receivables faster (shorten payment terms, send invoices promptly), negotiate longer supplier payment terms, reduce inventory levels, and manage cash flow timing carefully.
What is the cash conversion cycle? ▾
Days of Inventory + Days Sales Outstanding - Days Payable Outstanding. Measures how long it takes to convert inputs to cash. Shorter CCC = better working capital efficiency.

Related Business Calculators

💰 Cash Flow🔥 Burn Rate📊 EBITDA📊 AR Days📊 Profit Margin