Working Capital Calculator – Business Liquidity Analysis
Calculate business working capital and liquidity ratios
Table of Contents
How to Use
- Choose simple mode for quick calculation or detailed mode for accurate analysis
- Enter your current assets (cash, receivables, inventory)
- Enter your current liabilities (payables, short-term debt)
- Click calculate to see your working capital and ratios
What is Working Capital?
Working capital is the difference between a company's current assets and current liabilities. It represents the capital available for day-to-day operations and is a key indicator of short-term financial health.
The formula is simple: Working Capital = Current Assets - Current Liabilities. Positive working capital indicates a company can fund its current operations and invest in future growth.
Key Liquidity Ratios
| Ratio | Formula | Benchmark |
|---|---|---|
| Current Ratio | Current Assets / Current Liabilities | > 1.5 is healthy |
| Quick Ratio | (Cash + Receivables) / Current Liabilities | > 1.0 is healthy |
| Cash Ratio | Cash / Current Liabilities | > 0.5 is good |
| NWC Ratio | Working Capital / Current Assets | Higher is better |
Industry Working Capital Benchmarks
- Retail: Current ratio 1.5-2.0 due to inventory needs
- Manufacturing: Current ratio 1.2-1.5 with heavy inventory
- Technology: Current ratio 2.0+ with minimal inventory
- Service businesses: Current ratio 1.0-1.5 with low assets
- Utilities: Current ratio below 1.0 is common due to stable cash flows
Managing Working Capital
- Accelerate receivables collection with early payment discounts
- Optimize inventory levels to reduce carrying costs
- Negotiate longer payment terms with suppliers
- Use just-in-time inventory management
- Consider factoring or receivables financing
- Monitor cash conversion cycle regularly
Frequently Asked Questions
- What is a good working capital ratio?
- A current ratio between 1.5 and 2.0 is generally considered healthy. Below 1.0 indicates the company may struggle to pay short-term obligations, while above 3.0 might mean assets aren't being used efficiently.
- What's the difference between current ratio and quick ratio?
- The current ratio includes all current assets (including inventory), while the quick ratio excludes inventory since it's less liquid. The quick ratio provides a more conservative view of liquidity.
- Can a profitable company have negative working capital?
- Yes. Some businesses like grocery stores or restaurants operate with negative working capital because they collect cash from customers before paying suppliers. This is known as 'operating on float.'
- How often should I calculate working capital?
- Monthly calculations are recommended for most businesses. Companies with seasonal variations or rapid growth should monitor weekly. Track trends over time rather than focusing on single snapshots.