Use this calculator to determine your business's working capital, a key indicator of its short-term liquidity and operational efficiency. Working capital is the difference between current assets and current liabilities.
Current Assets
Current Liabilities
Understanding Working Capital
Working capital is a vital financial metric that represents the difference between a company's current assets and current liabilities. It's a measure of a business's short-term liquidity, indicating its ability to cover its short-term obligations with its short-term assets. Essentially, it shows how much cash and other liquid assets a company has available to fund its day-to-day operations.
Why is Working Capital Important?
Liquidity Indicator: A positive working capital indicates that a company has enough short-term assets to pay off its short-term debts, suggesting good financial health.
Operational Efficiency: It reflects how efficiently a company is managing its short-term assets and liabilities.
Growth Potential: Sufficient working capital allows a business to invest in growth opportunities, manage unexpected expenses, and maintain smooth operations without liquidity crises.
Creditor Confidence: Lenders and investors often look at working capital as a sign of a company's financial stability and ability to repay debts.
The Working Capital Formula
The formula for working capital is straightforward:
Working Capital = Current Assets - Current Liabilities
Components of Current Assets:
Current assets are assets that can be converted into cash within one year. Common examples include:
Cash and Cash Equivalents: Physical cash, bank balances, and highly liquid investments.
Accounts Receivable: Money owed to the company by customers for goods or services delivered on credit.
Inventory: Raw materials, work-in-progress, and finished goods available for sale.
Marketable Securities: Short-term investments that can be easily sold.
Prepaid Expenses: Payments made for expenses that will be incurred in the future (e.g., rent, insurance).
Components of Current Liabilities:
Current liabilities are obligations that are due within one year. Common examples include:
Accounts Payable: Money owed by the company to its suppliers for goods or services purchased on credit.
Short-Term Debt (Notes Payable): Loans or other debts that must be repaid within one year.
Accrued Expenses: Expenses incurred but not yet paid (e.g., salaries, utilities).
Current Portion of Long-Term Debt: The part of a long-term loan that is due within the next 12 months.
Unearned Revenue: Payments received for goods or services that have not yet been delivered.
Interpreting Your Working Capital
Positive Working Capital: This is generally a good sign, indicating that a company has enough liquid assets to cover its short-term obligations. A healthy positive working capital allows for operational flexibility and growth.
Negative Working Capital: This means current liabilities exceed current assets. It can signal potential liquidity problems, indicating that the company might struggle to meet its short-term debts. While sometimes seen in highly efficient businesses with rapid inventory turnover (like some retail giants), it's often a red flag.
Ideal Working Capital: There's no one-size-fits-all "ideal" number. It varies by industry and business model. However, a working capital ratio (Current Assets / Current Liabilities) between 1.5 and 2.0 is often considered healthy. Too high can mean inefficient use of assets, while too low can mean liquidity risk.
Example Calculation:
Let's say a small manufacturing business has the following:
Cash: $20,000
Accounts Receivable: $15,000
Inventory: $30,000
Other Current Assets: $5,000
Total Current Assets = $20,000 + $15,000 + $30,000 + $5,000 = $70,000
Accounts Payable: $25,000
Short-Term Debt: $10,000
Accrued Expenses: $5,000
Other Current Liabilities: $2,000
Total Current Liabilities = $25,000 + $10,000 + $5,000 + $2,000 = $42,000
Working Capital = $70,000 (Current Assets) – $42,000 (Current Liabilities) = $28,000
This business has a positive working capital of $28,000, indicating a healthy short-term financial position.
.calculator-container {
font-family: 'Segoe UI', Tahoma, Geneva, Verdana, sans-serif;
background-color: #f9f9f9;
padding: 25px;
border-radius: 10px;
box-shadow: 0 4px 12px rgba(0, 0, 0, 0.08);
max-width: 800px;
margin: 30px auto;
border: 1px solid #e0e0e0;
}
.calculator-container h2 {
color: #2c3e50;
text-align: center;
margin-bottom: 20px;
font-size: 1.8em;
}
.calculator-container h3 {
color: #34495e;
margin-top: 25px;
margin-bottom: 15px;
font-size: 1.3em;
border-bottom: 1px solid #eee;
padding-bottom: 5px;
}
.calculator-container p {
color: #555;
line-height: 1.6;
margin-bottom: 15px;
}
.calc-inputs label {
display: block;
margin-bottom: 8px;
color: #333;
font-weight: bold;
font-size: 0.95em;
}
.calc-inputs input[type="number"] {
width: calc(100% – 22px);
padding: 10px;
margin-bottom: 15px;
border: 1px solid #ccc;
border-radius: 5px;
box-sizing: border-box;
font-size: 1em;
}
.calc-inputs input[type="number"]:focus {
border-color: #007bff;
box-shadow: 0 0 5px rgba(0, 123, 255, 0.3);
outline: none;
}
.calc-inputs button {
display: block;
width: 100%;
padding: 12px 20px;
background-color: #28a745;
color: white;
border: none;
border-radius: 5px;
font-size: 1.1em;
cursor: pointer;
transition: background-color 0.3s ease;
margin-top: 20px;
}
.calc-inputs button:hover {
background-color: #218838;
}
.calc-results {
background-color: #e9f7ef;
border: 1px solid #d4edda;
border-radius: 8px;
padding: 20px;
margin-top: 25px;
font-size: 1.1em;
color: #155724;
line-height: 1.8;
}
.calc-results strong {
color: #0a3622;
}
.calc-results p {
margin: 5px 0;
}
.article-content {
margin-top: 30px;
padding-top: 20px;
border-top: 1px solid #eee;
}
.article-content ul {
list-style-type: disc;
margin-left: 20px;
margin-bottom: 15px;
color: #555;
}
.article-content ul li {
margin-bottom: 8px;
}
.article-content code {
background-color: #eef;
padding: 2px 5px;
border-radius: 4px;
font-family: 'Courier New', Courier, monospace;
color: #c7254e;
}
function calculateWorkingCapital() {
// Get Current Assets components
var cashEquivalents = parseFloat(document.getElementById("cashEquivalents").value) || 0;
var accountsReceivable = parseFloat(document.getElementById("accountsReceivable").value) || 0;
var inventory = parseFloat(document.getElementById("inventory").value) || 0;
var otherCurrentAssets = parseFloat(document.getElementById("otherCurrentAssets").value) || 0;
// Get Current Liabilities components
var accountsPayable = parseFloat(document.getElementById("accountsPayable").value) || 0;
var shortTermDebt = parseFloat(document.getElementById("shortTermDebt").value) || 0;
var accruedExpenses = parseFloat(document.getElementById("accruedExpenses").value) || 0;
var otherCurrentLiabilities = parseFloat(document.getElementById("otherCurrentLiabilities").value) || 0;
// Calculate Total Current Assets
var totalCurrentAssets = cashEquivalents + accountsReceivable + inventory + otherCurrentAssets;
// Calculate Total Current Liabilities
var totalCurrentLiabilities = accountsPayable + shortTermDebt + accruedExpenses + otherCurrentLiabilities;
// Calculate Working Capital
var workingCapital = totalCurrentAssets – totalCurrentLiabilities;
// Determine interpretation
var interpretation = "";
if (workingCapital > 0) {
interpretation = "This indicates a healthy short-term liquidity position, meaning your business has sufficient current assets to cover its current liabilities.";
} else if (workingCapital = 2.0) {
ratioInterpretation = "A ratio of " + workingCapitalRatio + " is generally considered very strong, but could also indicate inefficient use of assets if too high.";
} else if (workingCapitalRatio >= 1.0) {
ratioInterpretation = "A ratio of " + workingCapitalRatio + " is generally considered healthy, indicating good short-term financial stability.";
} else {
ratioInterpretation = "A ratio of " + workingCapitalRatio + " is below 1.0, which suggests potential liquidity problems.";
}
}
// Display results
var resultDiv = document.getElementById("workingCapitalResult");
resultDiv.innerHTML =
"Total Current Assets: $" + totalCurrentAssets.toLocaleString('en-US') + "" +
"Total Current Liabilities: $" + totalCurrentLiabilities.toLocaleString('en-US') + "" +
"Working Capital: $" + workingCapital.toLocaleString('en-US') + "" +
"Working Capital Ratio (Current Assets / Current Liabilities): " + workingCapitalRatio + "" +
"" + interpretation + " " + ratioInterpretation + "";
}