Working Capital Calculator
Enter current assets and current liabilities to see working capital and the working capital ratio.
Updated
Working Capital Calculator
Our Working Capital Calculator shows whether a business has enough short-term resources to cover its short-term obligations. Type current assets and current liabilities from the balance sheet. It returns working capital, the working capital ratio and a bar showing how much of current assets is left after paying every current liability. It suits business owners managing cash, lenders and investors checking liquidity, and accounting and finance students.
Quick answer
Working capital is current assets − current liabilities: with current assets of 1,200,000 and current liabilities of 800,000, 1,200,000 − 800,000 = 400,000, and the working capital ratio is 1,200,000 ÷ 800,000 = 1.5.
- Current assets: cash, receivables, inventory and other assets turned into cash within a year.
- Current liabilities: payables, short-term loans and other bills due within a year.
- Positive result: a cushion for day-to-day operations.
- Negative result: short-term bills are larger than short-term assets.
What Is Working Capital?
Working capital is the difference between a company's current assets and its current liabilities. It measures the money available to run the business day to day: paying suppliers and staff, buying stock and handling surprises. Because both sides are due or usable within about a year, it is a test of short-term liquidity rather than long-term value.
A business can be profitable and still run short of cash if its working capital is too thin. Lenders, suppliers and investors look at it to judge whether the company can pay its bills on time.
Working Capital Formula
= current assets
− current liabilities
= current assets
÷ current liabilities
- Current assets: cash and equivalents, accounts receivable, inventory, short-term investments and prepaid expenses.
- Current liabilities: accounts payable, short-term loans, accrued expenses, taxes payable and the current portion of long-term debt.
The first formula gives an amount, the second a ratio. The working capital ratio is the same number as the current ratio.
How to Calculate Working Capital
A company has 1,200,000 of current assets and 800,000 of current liabilities on its balance sheet:
- Add up current assets. Cash, receivables, stock and other short-term assets: 1,200,000.
- Add up current liabilities. Payables, short-term debt and accruals: 800,000.
- Subtract. 1,200,000 − 800,000 = 400,000 of working capital.
- Divide for the ratio. 1,200,000 ÷ 800,000 = 1.5.
The company has 1.5 of current assets for every 1 it owes in the next year, and a third of its current assets (400,000) would be left after paying every current liability.
Working Capital at a Glance
Working Capital Examples
| Business | Result |
|---|---|
| Distributor 450,000 − 236,000 | 214,000 ratio ≈ 1.91 |
| Retail store 120,000 − 90,000 | 30,000 ratio ≈ 1.33 |
| Consulting firm 80,000 − 40,000 | 40,000 ratio 2 |
| Supermarket 300,000 − 420,000 | −120,000 ratio ≈ 0.71 |
The distributor has almost twice the current assets it needs, room to fund growth. The retail store has a modest cushion and must watch cash before a busy season. The consulting firm holds little stock, so its liquidity is mostly cash and receivables. The supermarket is negative, which is common in grocery: customers pay at the till while suppliers are paid weeks later.
How to Read the Working Capital Ratio
| Ratio | Usual reading |
|---|---|
| Below 1 | Liabilities exceed assets; possible liquidity risk |
| 1 to 1.5 | Covered, but the cushion is thin |
| 1.5 to 2.5 | Generally seen as healthy |
| Above 2.5 | Cash or stock may be idle |
These bands are a rough guide only. Retailers and manufacturers with large inventories usually need more working capital than service or software businesses, and a ratio below 1 can be normal where customers pay before suppliers do. Compare a company with its own history and its industry.
What Changes Working Capital
Starting from 1,200,000 of current assets and 800,000 of current liabilities, each change below is made on its own:
| Change | Result |
|---|---|
| Pay a supplier 100,000 in cash | 400,000 ratio ≈ 1.57 |
| Buy 200,000 of stock on credit | 400,000 ratio 1.4 |
| Borrow 300,000 long term | 700,000 ratio ≈ 1.88 |
| 250,000 of a loan falls due | 150,000 ratio ≈ 1.14 |
Moves between current items leave the amount unchanged but shift the ratio. Long-term funding raises working capital, and long-term debt becoming due within a year lowers it.
How to Improve Working Capital
- Collect faster. Shorter customer terms and prompt invoicing turn receivables into cash sooner.
- Hold less stock. Slow-moving inventory ties up cash that could pay bills.
- Agree longer supplier terms. Paying later keeps cash in the business, as long as relationships allow it.
- Fund long-term assets long term. Buying equipment with short-term debt drains working capital.
The net operating working capital measure strips out cash and debt to focus on operations, and the working capital turnover ratio shows how hard working capital is used to generate sales.
What the Result Leaves Out
- Quality of assets. Old receivables or unsellable stock count in full but may never become cash.
- Timing. A bill due next week and one due in eleven months count the same.
- One date. The balance sheet is a snapshot; seasonal businesses swing a lot within the year.
The result is for education and planning and is not financial or investment advice.
Key Terms
- Working capital
- Current assets minus current liabilities.
- WC ratio
- Current assets ÷ current liabilities.
- Current assets
- Assets turned into cash within a year.
- Current liabilities
- Obligations due within a year.
- Liquidity
- The ability to pay short-term bills.
How to Use the Working Capital Calculator
- Enter current assets. Type total current assets from the balance sheet, such as 1,200,000.
- Enter current liabilities. Type total current liabilities, such as 800,000.
- Read and copy the result. Working capital appears as you type, with the working, the working capital ratio and a bar splitting current assets into working capital and liabilities. Press Copy to copy it, or Clear or Esc to start again.
Example: current assets of 450,000 and current liabilities of 236,000 give working capital of 214,000 and a ratio of about 1.91.
Who Can Use This Calculator?
Frequently Asked Questions (FAQs)
How do you calculate working capital?
Subtract total current liabilities from total current assets. Both figures come from the balance sheet.
What is the working capital formula?
Working capital = current assets − current liabilities. The working capital ratio = current assets ÷ current liabilities.
What is the working capital for current assets of 1,200,000 and current liabilities of 800,000?
It is 400,000, because 1,200,000 − 800,000 = 400,000. The working capital ratio is 1,200,000 ÷ 800,000 = 1.5.
What is a good working capital ratio?
A ratio between about 1.5 and 2.5 is usually seen as healthy, but the right level depends on the industry. Below 1 means current liabilities exceed current assets.
Can working capital be negative?
Yes. It is negative when current liabilities are larger than current assets. That can signal cash trouble, but it is normal for some businesses, such as supermarkets, that collect from customers before paying suppliers.
Is the working capital ratio the same as the current ratio?
Yes. Both divide current assets by current liabilities.
Does working capital include cash?
Yes. Cash is a current asset. Net operating working capital is the version that leaves cash and short-term debt out.
Is the Working Capital Calculator free?
Yes. It is free to use, with no sign-up and no limit on how many times you use it.
Sources
- Corporate Finance Institute. Working Capital Formula.
- Corporate Finance Institute. Working Capital Cycle.
- AccountingTools. Working capital definition.
- AccountingCoach. What is working capital?.
- Wikipedia. Working capital.
- Wikipedia. Current ratio.
- Wikipedia. Current liability.
Try our Working Capital Calculator to check whether short-term assets cover short-term bills.