Working Capital Calculator

Working capital is the money a business would have left if it turned its current assets into cash and paid off everything due within a year. The current ratio says the same thing as a ratio: how many dollars of short-term assets stand behind each dollar of short-term debt. The quick and cash ratios are stricter versions that count only the assets that turn into cash fast.

The formula

working capital = current assets − current liabilities
current ratio = current assets ÷ current liabilities
safety margin = working capital ÷ current assets

current assets = cash + short-term investments + receivables + inventory + prepaid expenses + other
current liabilities = payables + short-term loans + accrued expenses + long-term debt due this year + other
quick ratio (acid test) = (cash + short-term investments + receivables) ÷ current liabilities
cash ratio = (cash + short-term investments) ÷ current liabilities
non-cash working capital = (current assets − cash − short-term investments) − (current liabilities − short-term loans − long-term debt due this year)

working capital as a % of revenue = working capital ÷ yearly revenue × 100
working capital turnover = yearly revenue ÷ average working capital
average working capital = (working capital now + working capital then) ÷ 2
change in working capital = working capital now − working capital then
effect on operating cash flow = − change in non-cash working capital

days sales outstanding (DSO) = receivables ÷ yearly revenue × days in a year
days inventory outstanding (DIO) = inventory ÷ yearly cost of goods sold × days in a year
days payables outstanding (DPO) = payables ÷ yearly cost of goods sold × days in a year
cash conversion cycle = DSO + DIO − DPO

Worked example

A business has $250,000 of current assets and $125,000 of current liabilities.

Working capital = 250,000 − 125,000 = $125,000. Current ratio = 250,000 ÷ 125,000 = 2.00: $2 of short-term assets for every $1 owed. Safety margin = 125,000 ÷ 250,000 = 50%: its current assets could lose half their value before working capital reached zero.

The same business in Advanced mode

Its current assets are cash $40,000, short-term investments $10,000, receivables $80,000, inventory $100,000 and prepaid expenses $20,000: 40,000 + 10,000 + 80,000 + 100,000 + 20,000 = $250,000. Its current liabilities are payables $60,000, short-term loans $20,000, accrued expenses $20,000 and $25,000 of long-term debt due this year: 60,000 + 20,000 + 20,000 + 25,000 = $125,000.

Quick ratio = (40,000 + 10,000 + 80,000) ÷ 125,000 = 130,000 ÷ 125,000 = 1.04. Cash ratio = 50,000 ÷ 125,000 = 0.40. Non-cash working capital = (250,000 − 50,000) − (125,000 − 20,000 − 25,000) = 200,000 − 80,000 = $120,000.

Yearly revenue is $1,000,000, so working capital is 125,000 ÷ 1,000,000 = 12.5% of revenue. A year earlier it had $220,000 of current assets and $120,000 of current liabilities: working capital of $100,000. The change is 125,000 − 100,000 = +$25,000, and the average is (125,000 + 100,000) ÷ 2 = $112,500, so working capital turnover = 1,000,000 ÷ 112,500 = 8.89 times.

Back then it held $30,000 of cash and short-term investments and owed $45,000 of short-term loans and debt due, so its non-cash working capital was (220,000 − 30,000) − (120,000 − 45,000) = 190,000 − 75,000 = $115,000. Non-cash working capital rose by 120,000 − 115,000 = $5,000, which takes $5,000 off operating cash flow.

With cost of goods sold of $600,000 and a 365-day year: DSO = 80,000 ÷ 1,000,000 × 365 = 29.2 days; DIO = 100,000 ÷ 600,000 × 365 = 60.83 days; DPO = 60,000 ÷ 600,000 × 365 = 36.5 days. Cash conversion cycle = 29.2 + 60.83 − 36.5 = 53.53 days.

Notes

• What's “healthy” varies a lot by industry and by how customers pay, so this calculator doesn't give one target. Compare with your own history and with similar businesses, and watch the trend.
• Negative working capital isn't always trouble. Some businesses collect cash from customers before they pay suppliers and run this way on purpose. For others it can mean short-term debts are hard to meet.
• A very high current ratio can mean cash or stock is sitting idle instead of earning.
• Revenue for a quarter or a month is multiplied up to a year (× 4 or × 12), so turnover and days are on a yearly basis.
• Days measures use the balances you typed (end of period). Analysts often use the average of the start and end balances instead; the inventory turnover calculator can do that for stock.
• If working capital is zero or negative, working capital turnover isn't meaningful and isn't shown.

Standard accounting ratio definitions. Use figures from the same balance sheet date. Results are a guide, not accounting advice.