Working Capital Calculator
Calculate working capital and the current ratio from your current assets and liabilities.
A key measure of short-term financial health.
What Is Working Capital?
Working capital is the money a business (or individual) has available to meet day-to-day obligations. It is the difference between current assets and current liabilities.
The Formulas
Working Capital = Current Assets − Current Liabilities
Current Ratio = Current Assets ÷ Current Liabilities
Current assets are assets that can be converted to cash within one year:
- Cash and bank balances
- Accounts receivable (money owed to you)
- Inventory
- Prepaid expenses
Current liabilities are obligations due within one year:
- Accounts payable (money you owe suppliers)
- Short-term loans
- Accrued expenses
- Current portion of long-term debt
Interpreting the Current Ratio
| Current Ratio | Meaning |
|---|---|
| Below 1.0 | Negative working capital — liquidity risk |
| 1.0 – 1.5 | Tight — enough to survive but little buffer |
| 1.5 – 2.0 | Healthy — standard for most businesses |
| 2.0 – 3.0 | Strong — comfortable liquidity position |
| Above 3.0 | May indicate inefficient use of capital |
Practical Example
A business has:
-
Cash: $30,000
-
Accounts receivable: $45,000
-
Inventory: $25,000
-
Total current assets: $100,000
-
Accounts payable: $20,000
-
Short-term loans: $15,000
-
Accrued expenses: $5,000
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Total current liabilities: $40,000
Working Capital = $100,000 − $40,000 = $60,000 Current Ratio = $100,000 ÷ $40,000 = 2.5
This is a healthy position — the business can easily cover its short-term obligations.
Why Working Capital Matters
Even profitable businesses fail due to poor cash flow. Maintaining adequate working capital ensures you can pay suppliers, employees, and bills while waiting for customers to pay. Lenders also check working capital when evaluating business loan applications.