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Working capital calculator
Can the business pay what is due this year from what it has? Enter the current assets and liabilities from your balance sheet for working capital, the current ratio, quick ratio and cash ratio. Runs in your browser; nothing is saved.
From your balance sheet
Current assets (cash within a year)
What customers owe you, less anything you don't expect to collect.
Current liabilities (due within a year)
Only the current portion of long-term loans, plus any line of credit.
Customer deposits, accrued wages, unearned revenue.
Result
Current assets
$130,000.00
Current liabilities
$65,000.00
Working capital
Current assets − current liabilities
$65,000.00
Current ratio
Current assets ÷ current liabilities
2.00
Quick ratio (acid test)
(Cash + receivables) ÷ current liabilities
1.46
Cash ratio
Cash ÷ current liabilities
0.62
Common rules of thumb: a current ratio between 1.5 and 2 and a quick ratio of 1 or more. Lenders and industries differ, and a very high ratio can mean cash sitting idle. Works in any currency.
How the ratios are worked out
| Measure | Formula | What it tells you |
|---|---|---|
| Working capital | Current assets − current liabilities | The cash cushion, in dollars, for the next 12 months |
| Current ratio | Current assets ÷ current liabilities | Cover for this year's obligations from all current assets |
| Quick ratio | (Cash + receivables) ÷ current liabilities | Cover without having to sell stock |
| Cash ratio | Cash ÷ current liabilities | Cover from cash alone, the strictest test |
Worked example
A small distributor's balance sheet shows $40,000 in the bank, $55,000 of receivables, $30,000 of inventory and $5,000 of prepaid insurance: $130,000 of current assets. It owes $38,000 to suppliers, $6,000 on credit cards and $9,000 of payroll and sales tax, and $12,000 of loan principal is due in the next year: $65,000 of current liabilities. Working capital is $65,000 and the current ratio is 2.0. Without the stock and prepaid insurance, the quick ratio is $95,000 ÷ $65,000 = 1.46; on cash alone it is 0.62.
What moves working capital
- Collecting faster turns receivables into cash. The DSO calculator shows how long customers take.
- Carrying less stock frees cash; see the inventory turnover calculator.
- Paying suppliers on their terms, not early, keeps cash longer (unless an early-payment discount is worth it).
- Financing equipment with a term loan rather than paying from the bank keeps current assets up, at the cost of interest.
- Profit builds working capital over time; owner draws and losses reduce it.
For a look forward rather than a snapshot, the cash runway calculator projects month by month, and a cash flow forecast template lets you plan in detail.
Questions
What is the working capital formula?
Working capital = current assets − current liabilities. Current assets are cash and what will turn into cash within a year (receivables, inventory, prepaid expenses). Current liabilities are what you must pay within a year (supplier bills, credit cards, taxes owed, loan payments due in the next 12 months). $130,000 − $65,000 = $65,000 of working capital.
How do I calculate the current ratio?
Current ratio = current assets ÷ current liabilities. $130,000 ÷ $65,000 = 2.0, meaning $2 of current assets for every $1 due within a year.
What is a good current ratio?
A common rule of thumb is 1.5 to 2. Below 1 means more is due this year than you have in current assets, which can be a warning sign. Well above 2 can mean cash or stock that could be working harder. Industries differ: a grocer with fast-selling stock can run lower than a manufacturer.
What is the difference between the current ratio and the quick ratio?
The quick ratio (or acid-test ratio) leaves out inventory and prepaid expenses, because they cannot quickly pay a bill. Quick ratio = (cash + receivables) ÷ current liabilities. In the example, $95,000 ÷ $65,000 = 1.46. Some definitions also add short-term investments to the top line.
Can working capital be negative?
Yes, when current liabilities are more than current assets. For most small businesses it means a cash squeeze is coming unless sales, collections or financing change. A few business types, such as restaurants paid in cash on the day but paying suppliers on 30 days, can run with little or negative working capital.
Which loan payments count as current?
Only the principal due in the next 12 months. The rest of the loan is a long-term liability. A line of credit you can be asked to repay at any time is usually current. Your loan schedule, or the loan amortization calculator, shows how much principal falls due in the coming year.
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General information, not financial advice. Lenders may define these ratios slightly differently in a loan agreement; use their definition for any covenant.
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