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.
FAQ
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.
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.