Working Capital Calculator
Calculate working capital from current assets and current liabilities. See the dollar amount of working capital, the current ratio, and a plain-English liquidity position. Positive working capital means you can cover short-term obligations.
What Is Working Capital?
Working capital is the difference between current assets and current liabilities — the money available to run day-to-day operations. Current assets are things you can convert to cash within 12 months (cash, receivables, inventory). Current liabilities are what you owe within 12 months (payables, short-term debt, accrued wages).
Positive working capital means you have enough short-term assets to cover short-term obligations. Negative working capital means you do not — a warning sign of liquidity problems, unless your business model is structured that way (for example, grocery retail that collects from customers before paying suppliers).
Working Capital Formula
Working Capital = Current Assets − Current Liabilities
Current Ratio = Current Assets ÷ Current Liabilities
Current assets include:
- Cash and cash equivalents
- Accounts receivable (money customers owe you)
- Inventory (raw materials, work in progress, finished goods)
- Short-term investments and prepaid expenses
Current liabilities include:
- Accounts payable (money you owe suppliers)
- Short-term debt and current portion of long-term debt
- Accrued expenses (wages owed, taxes owed)
- Unearned revenue and customer deposits
Worked Example
A business has $150,000 in current assets and $80,000 in current liabilities:
Working capital = $150,000 − $80,000 = $70,000
Current ratio = $150,000 ÷ $80,000 = 1.88
Interpretation: for every $1 of short-term obligations, the business has $1.88 of short-term assets. This is a healthy liquidity position — enough cushion to handle unexpected costs without stretching to pay bills.
How to Interpret Working Capital
- Large positive working capital (ratio > 2.0) — strong liquidity, but possibly idle cash that could be invested or returned to shareholders.
- Moderate positive (ratio 1.2–2.0) — healthy. Business can cover short-term obligations comfortably.
- Low positive (ratio 1.0–1.2) — tight. Small shocks could cause problems.
- Negative working capital (ratio below 1.0) — potential liquidity crisis. Cannot pay short-term bills without new financing.
- Very negative — insolvency risk. Immediate action needed: cut costs, collect receivables, refinance debt.
Frequently Asked Questions
What is a good working capital?
It depends on your industry. A current ratio of 1.5–2.0 is generally considered healthy. Retail and manufacturing often run higher; service businesses can run lower because they have less inventory. The right number is enough to cover one to two months of operating expenses without new borrowing.
What is the difference between working capital and cash flow?
Working capital is a snapshot at a point in time — a balance sheet item. Cash flow is a measure over a period — money in versus money out. A business can have positive working capital but negative cash flow (for example, if inventory is rising faster than sales), or negative working capital but positive cash flow (if collections are fast and payables are slow).
Can working capital be negative?
Yes. Negative working capital means current liabilities exceed current assets. This is dangerous for most businesses but can be a legitimate strategy for some. Grocery retailers, for example, collect from customers immediately (cash or card) but pay suppliers 30–60 days later — so working capital is often negative without any cash flow problem.
How do I improve working capital?
Two directions: increase current assets or decrease current liabilities. Practical moves include collecting receivables faster (reduce DSO), reducing inventory levels (reduce DIO), negotiating longer payment terms with suppliers (increase DPO), refinancing short-term debt with long-term debt, or selling unused assets.
What is the difference between working capital and the current ratio?
Working capital is a dollar amount. The current ratio is the same relationship expressed as a multiple. A business with $70,000 working capital and a 1.88 current ratio has the same liquidity as one with $7,000 working capital and 1.88 current ratio — the ratio tells you the cushion relative to liabilities; the dollar amount tells you the absolute cushion.
Why do analysts prefer the current ratio over working capital?
The current ratio is comparable across companies of different sizes. A $70,000 working capital means different things for a $100,000 business and a $10 million business — but a 1.88 current ratio means the same thing for both. Use the ratio for comparison and the dollar amount for absolute assessment.