Working Capital Calculator
Enter total current assets and current liabilities to calculate net working capital and the current ratio — the two core short-term liquidity metrics for any business.
Enter total current assets and current liabilities to calculate net working capital and the current ratio — the two key short-term liquidity metrics for any business.
Cash, receivables, inventory, prepaid expenses
Accounts payable, accruals, short-term debt
Formula
Working Capital = Current Assets − Current Liabilities | Current Ratio = Current Assets ÷ Current Liabilities
Working capital measures the short-term liquidity buffer — the cash and near-cash assets available after all short-term obligations are met. The current ratio expresses this as a multiple: a ratio of 2.0 means $2 in current assets for every $1 of current liabilities.
Worked Example
Current assets $120,000 (cash $40k, receivables $50k, inventory $30k) · Current liabilities $75,000 (payables $45k, accruals $30k):
Working capital = $120,000 − $75,000 = $45,000
Current ratio = $120,000 ÷ $75,000 = 1.60×
A 1.60× current ratio is healthy for most businesses. The $45,000 buffer means the business can absorb a modest shortfall in receivables collections or an unexpected expense without a cash crisis. Most lenders look for 1.5× or above.
Frequently Asked Questions
Use this in your workflow
After checking your working capital position, use the Business Loan Calculator to model whether loan repayments fit within your liquidity buffer. Use the Break-even Calculator to confirm you have the capital to fund production to break-even volume. Browse all Business Calculator Hub tools.
Worked example: SME balance sheet snapshot
A useful starting point before entering your own figures above.
| Item | Value |
|---|---|
| Cash and bank balances | £45,000 |
| Accounts receivable (within 12 months) | £80,000 |
| Inventory | £55,000 |
| Total current assets | £180,000 |
| Accounts payable | £60,000 |
| Accrued expenses | £25,000 |
| Short-term loan | £10,000 |
| Total current liabilities | £95,000 |
| Net working capital (£180k − £95k) | £85,000 |
| Current ratio (£180k ÷ £95k) | 1.89 |
Interpretation: a current ratio of 1.89 sits comfortably within the healthy 1.5–3.0 range, meaning the business has £1.89 in liquid assets for every £1.00 of short-term obligations. If the ratio were below 1.0, short-term liabilities would exceed current assets — a sign the business may struggle to meet payments without additional financing.
Limitations
Working capital and the current ratio are balance-sheet snapshots — they reflect a single moment in time and do not capture cash flow timing. A business with a healthy ratio can still face a cash shortfall if receivables take 90 days to collect while payables are due in 30. Inventory quality also matters: slow-moving or obsolete stock inflates current assets without providing real liquidity. Use working capital analysis alongside a cash flow forecast for a complete picture. These figures are for planning purposes only — not financial or accounting advice.
Common mistakes when analysing working capital
Including slow-moving or obsolete inventory at face value
Inventory counts as a current asset, but if it cannot be sold quickly it does not provide real liquidity. A retailer holding £50,000 of unsellable stock has a misleadingly healthy current ratio. Adjust inventory for realistic realisable value before making liquidity decisions.
Treating all receivables as collectable within 30 days
Accounts receivable aged over 90 days may be impaired. If a large debtor is overdue, the current ratio overstates actual liquidity. Review your debtor ageing report and discount receivables that are unlikely to be collected quickly when assessing true liquidity.
Omitting the current portion of long-term debt
The first 12 months of repayments on a long-term loan are a current liability — they must be included in current liabilities, not buried in non-current liabilities. Omitting this understates short-term obligations and inflates the current ratio.
Using working capital in isolation without a cash flow forecast
A current ratio of 2.0 gives no information about timing. A business may have £200,000 in receivables due in 11 months and £100,000 in payables due next week — still solvent on paper, but facing an immediate cash crisis. Always pair working capital analysis with a 13-week cash flow forecast.
Comparing current ratios across different industries
Retailers with fast stock turnover routinely operate at current ratios of 1.0–1.3. Manufacturers may need 2.0+. A ratio that looks low for one sector may be entirely normal for another. Benchmark against industry peers, not a universal threshold.
When to use this calculator
- →Reviewing quarterly or annual balance sheet health and lender covenant compliance
- →Preparing for a bank loan application or investor due diligence review
- →Assessing whether a business can fund growth or seasonal stock buildup
- →Benchmarking liquidity before signing a new supplier contract or capital commitment
Frequently asked questions
What is working capital?
Working capital is current assets minus current liabilities. It measures short-term liquidity — the funds available to meet day-to-day operating obligations. Positive working capital means the business can cover its short-term debts from existing liquid assets. Negative working capital is a warning sign.
What is the current ratio?
The current ratio is current assets divided by current liabilities. It expresses working capital as a multiple — a ratio of 1.60 means there is £1.60 in liquid assets for every £1.00 of short-term obligations. A ratio above 1.5 is generally considered healthy; above 2.0 is strong. Below 1.0 means current liabilities exceed current assets.
What is a good current ratio?
Most lenders and analysts look for a current ratio of 1.5 to 3.0. Below 1.0 indicates liquidity risk. Above 3.0 may indicate the business is holding too much idle cash or inventory. The ideal range depends on industry — retailers with fast inventory turnover can operate at lower ratios than manufacturers.
What counts as current assets and current liabilities?
Current assets include cash, accounts receivable (due within 12 months), inventory, prepaid expenses and short-term investments. Current liabilities include accounts payable, accrued expenses, short-term bank loans, the current portion of long-term debt, and deferred revenue due within 12 months.
How can I improve working capital?
Working capital improves by increasing current assets or reducing current liabilities. Practical levers include reducing debtor days (invoice faster, chase payments sooner), extending supplier payment terms, reducing slow-moving inventory, converting short-term debt to long-term facilities, and using invoice factoring or a revolving credit line.
What is the difference between working capital and cash flow?
Working capital is a balance-sheet snapshot comparing assets and liabilities at a single point in time. Cash flow is a movement measure tracking money in and out over a period. A business can have positive working capital but still run short of cash if receivables are slow to collect. Use working capital analysis alongside a cash flow forecast.