Working capital

Working capital is a business's current assets minus its current liabilities. It measures the money available to run day-to-day operations over the next year: cash, receivables and inventory, less the bills, card balances, taxes and loan payments due soon. Positive working capital means short-term debts can be covered from short-term assets.

Glossary / Working capital · Also called net working capital, current ratio

How it works

Current assets are those expected to turn into cash within a year. Current liabilities are those due within a year. Both come straight from the balance sheet, so working capital can be worked out on any date.

A related measure is the current ratio, current assets divided by current liabilities. A ratio between 1.5 and 2 is often described as comfortable, but the right level depends on the industry. Growing businesses often run short of working capital because they pay suppliers and staff before customers pay them.

Worked example: Working capital and the current ratio

A wholesaler has $25,000 in the bank, $40,000 of receivables and $35,000 of inventory, for $100,000 of current assets. It owes $30,000 to suppliers, $8,000 on a credit card, $4,000 of sales tax and $18,000 of loan payments due within the year, $60,000 in all.

Working capital is $100,000 - $60,000 = $40,000. The current ratio is $100,000 / $60,000 = 1.67.

Item	Amount
Current assets	$100,000
Current liabilities	$60,000
Working capital	$40,000
Current ratio	1.67

In AcboBooks

The Balance Sheet report shows each asset and liability account as of any date. Add up the bank, receivables and inventory accounts, subtract the payables, card, tax and payroll liabilities due within the year, and you have working capital.

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Updated October 25, 2026. General information, not tax, legal or accounting advice. Rules and rates change; check with the IRS, the CRA, your state or province, or your accountant.

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