You have revenue. But do you have cash?
A business can be profitable on paper but still run out of cash because invoices haven't been paid, inventory hasn't sold, or supplier payments are due. Working capital measures this: do you have enough liquid assets (cash + receivables + inventory) to cover short-term liabilities (payables, short-term debt)? A healthy business has positive working capital. A struggling business is managing cash crisis. This calculator shows your working capital health instantly.
What This Calculator Does
This tool calculates working capital by taking current assets (cash, receivables, inventory) and subtracting current liabilities (payables, short-term debt). It also calculates the current ratio (assets divided by liabilities), which tells you how many times over you can cover your near-term obligations. Feed in your balance sheet numbers, and the calculator shows whether your working capital is healthy, stressed, or critical.
How to Use This Calculator
Step 1: Count your current assets. This includes cash in the bank, accounts receivable (money owed by customers), and inventory at cost. If you have $50K cash, $30K in unpaid invoices, and $40K inventory, your current assets are $120K.
Step 2: Count your current liabilities. This includes accounts payable (money you owe suppliers), short-term debt (loans due within 12 months), and any other obligations due within one year. If you owe $20K to suppliers, $15K in short-term loans, and $10K in payroll taxes due, your current liabilities are $45K.
Step 3: The calculator shows your working capital (assets minus liabilities) and your current ratio (assets divided by liabilities).
Step 4: Interpret results. Positive working capital is good. Negative working capital is a problem. Current ratio above 1.5 is healthy. Below 1.0 is a red flag.
Step 5: Use this quarterly to spot trends. If working capital is shrinking month-over-month, investigate why and address before it becomes critical.
The Formula Behind the Math
Working Capital
Working Capital = Current Assets - Current Liabilities
Current Assets include:
Current Liabilities include:
Example:
Current Assets: $120,000
Cash: $50,000
Accounts Receivable: $30,000
Inventory: $40,000
Current Liabilities: $45,000
Accounts Payable: $20,000
Short-term Debt: $15,000
Payroll Taxes Payable: $10,000
Working Capital = $120,000 - $45,000 = $75,000 (positive, healthy)
Current Ratio
Current Ratio = Current Assets / Current Liabilities
Example:
Current Ratio = $120,000 / $45,000 = 2.67
You can cover your short-term obligations 2.67 times over. Very healthy.
Quick Ratio (more conservative, excludes inventory)
Quick Ratio = (Current Assets - Inventory) / Current Liabilities
Example:
Quick Ratio = ($120,000 - $40,000) / $45,000 = 1.78
Even excluding inventory (which might take time to sell), you can cover obligations 1.78x over.
Working Capital as Days of Operating Expenses
Days of Expenses Covered = Working Capital / (Monthly Operating Expenses)
Example: If monthly operating expenses are $10,000:
Days Covered = $75,000 / $10,000 = 7.5 months
Your working capital covers 7.5 months of operations.
Our calculator does all of this instantly-but now you understand exactly what it's computing.
Manufacturing Company Managing Seasonal Demand
You manufacture widgets. Q4 is huge (holiday season). You build inventory in Q3 to have stock ready (current assets spike). You also take on short-term debt to finance manufacturing (current liabilities spike). Your working capital in September: assets $500K, liabilities $200K, working capital $300K. Your working capital in January (after Q4 rush): assets $300K (inventory sold, converted to receivables and cash), liabilities $50K, working capital $250K. This calculator shows you're managing seasonal cycles okay, but January receivables tell you you're waiting for customer payments.
SaaS Company with Long Receivables
You're a B2B SaaS company. You invoice quarterly and customers take 30-60 days to pay. Your current assets: $50K cash, $150K in outstanding invoices (customers owe you), $0 inventory, total $200K. Current liabilities: $30K payables to vendors, $20K short-term debt, total $50K. Working capital: $150K (healthy). Current ratio: 4x (very healthy). But here's the catch: you have invoices due but haven't received payment. If a customer delays or defaults, your cash position looks different. Calculate working capital, but also watch days sales outstanding (how long until invoices are paid).
Retail Store Managing Inventory and Payables
You run a retail store. Current assets: $40K cash, $10K receivables, $80K inventory, total $130K. Current liabilities: $50K payables to suppliers, $10K short-term debt, total $60K. Working capital: $70K (positive). Current ratio: 2.17 (healthy). But you're highly dependent on inventory. If sales slow and inventory doesn't move, your inventory becomes dead weight and working capital deteriorates fast. Use inventory metrics (turnover, DIO) alongside working capital to see the full picture.
Startup on a Fundraising Timeline
You're a pre-revenue startup. Current assets: $100K cash (from a seed round). Current liabilities: $20K owed to contractors, total $20K. Working capital: $80K (very healthy). Current ratio: 5x (excellent). But your monthly burn is $25K, so your working capital covers only 3.2 months. This calculator shows you're solvent today but you'll have a problem if you don't raise more capital or hit revenue before cash runs out. Use alongside the runway calculator.
Tips and Things to Watch Out For
Positive working capital doesn't equal profitability. You can have positive working capital (enough cash to cover obligations) but be losing money. Conversely, you can be profitable but have negative working capital if growth is fast (you're collecting money slower than you're paying bills). Monitor both.
Inventory is not the same as cash. Inventory is an asset, but it's not liquid. If inventory takes 60 days to sell, and you need to pay suppliers in 30 days, you have a cash problem even though you're not broke on paper. Watch inventory days outstanding separately.
Receivables depend on customer creditworthiness. A $1M in outstanding customer invoices is a current asset, but if 30% of customers don't pay, you have a problem. Evaluate the quality of receivables. If a major customer is 90 days overdue, adjust your working capital by reducing that amount.
Deferred revenue is an obligation. If customers pay you in advance (like annual subscriptions), that's a liability (you owe them service). It improves your cash position short-term but increases current liabilities. It's not "free money"; you have to deliver.
Seasonal businesses have lumpy working capital. A holiday retail business has huge working capital before the season (inventory purchased), then shrinks after (inventory sold, converted to receivables/cash). Calculate working capital at different points in the cycle. Average might be misleading.
Improving working capital frees cash. If you can reduce days sales outstanding (collect invoices faster) or reduce days inventory outstanding (sell faster), you free cash. If you can extend days payable outstanding (negotiate longer payment terms), you free cash. Small improvements compound into significant cash releases.
Current ratio above 1.0 is minimum, above 1.5 is comfortable, above 3.0 is conservative. Above 3.0 might mean you're holding too much cash (opportunity cost-that cash could be invested). A 1.5-2.0 ratio is the sweet spot for most businesses.
*This working capital calculator shows a snapshot based on balance sheet numbers you provide. Working capital management requires understanding your cash conversion cycle, payment terms, inventory velocity, and receivable quality. For detailed working capital optimization, consult with a CFO or business advisor.*
Frequently Asked Questions
What's a healthy current ratio?
1.5-3.0 is healthy for most businesses. Above 3.0 might indicate excess cash (opportunity cost). Below 1.0 is a red flag (you can't cover short-term obligations). But it depends on your industry: manufacturing might need 2.0+, SaaS might be healthy at 1.5, utilities are typically lower.
What if my working capital is negative?
It means you owe more in the short-term than you have in liquid assets. You're in a cash crisis. This is only sustainable if cash is flowing in (customers paying, new sales). If you're in a cash crisis, focus on: 1) accelerating receivables collection, 2) reducing inventory, 3) negotiating longer payables terms, 4) reducing operating expenses, 5) raising capital.
Is it bad to have negative working capital?
Not always. Some fast-growing companies (especially retail) run on negative working capital because they collect from customers before paying suppliers. Amazon famously has negative working capital-they take customer money before paying suppliers. But this only works if you have strong credit and suppliers trust you. For most businesses, negative working capital is a stress signal.
How do I improve working capital?
1) Accelerate receivables: offer early-payment discounts, improve invoicing, follow up aggressively. 2) Reduce inventory: improve forecast accuracy, reduce safety stock, discontinue slow sellers. 3) Extend payables: negotiate longer terms with suppliers, use supply chain financing. 4) Sell assets: liquidate excess equipment or unused assets. 5) Raise capital: get investment or loans to boost cash.
Should I include all inventory or just finished goods?
Include all inventory-raw materials, work-in-progress, and finished goods. All are assets on your balance sheet. If you want to be conservative, calculate quick ratio (which excludes inventory) to see your position without depending on inventory sales.
What's the difference between working capital and cash flow?
Working capital is a balance sheet snapshot (assets minus liabilities at a point in time). Cash flow is a cash account change over time (cash in minus cash out). You can have positive working capital but negative cash flow if receivables aren't collected quickly. Track both.
How often should I calculate working capital?
At least quarterly, ideally monthly. This is a key health metric. If it's deteriorating month-over-month, you have a problem brewing. Track it as part of your monthly financial review.
Can I improve working capital without raising capital?
Yes. Accelerate receivables (collect faster), reduce inventory (sell faster), negotiate longer payables (pay later), and cut unnecessary expenses. But if the business is burning cash faster than you can optimize, you'll need to raise capital or slow growth.
Related Calculators
Use the inventory turnover calculator to optimize how fast you convert inventory to sales, which improves working capital. Check the burn rate calculator to understand your monthly cash burn and how long your working capital lasts. The break-even calculator helps you forecast when you'll become cash-positive.