1. What Is Working Capital?

Working capital is a financial metric that represents the operating liquidity available to a business. It measures a company's short-term financial health and efficiency by comparing current assets to current liabilities.

2. How Does The Calculator Work?

The calculator uses the working capital formula:

Where:

• \( Current\ Assets \) — Assets expected to be converted to cash within one year (cash, accounts receivable, inventory)
• \( Current\ Liabilities \) — Debts and obligations due within one year (accounts payable, short-term loans)
• \( WC \) — Working Capital in USD

Explanation: Positive working capital indicates a company can pay off short-term liabilities, while negative working capital suggests potential liquidity problems.

3. Importance Of Working Capital Calculation

Details: Working capital management is crucial for business operations, ensuring a company can meet its short-term obligations and continue operations without financial stress. It helps in assessing operational efficiency and financial stability.

4. Using The Calculator

Tips: Enter current assets and current liabilities in USD. Both values must be non-negative numbers. The calculator will compute the working capital difference instantly.

5. Frequently Asked Questions (FAQ)

Q1: What is considered good working capital?
A: Generally, a working capital ratio (current assets/current liabilities) between 1.2 and 2.0 is considered healthy, but this varies by industry.

Q2: Can working capital be negative?
A: Yes, negative working capital occurs when current liabilities exceed current assets, which may indicate potential liquidity issues.

Q3: How often should working capital be calculated?
A: Businesses typically calculate working capital monthly or quarterly as part of regular financial reporting and analysis.

Q4: What's the difference between working capital and cash flow?
A: Working capital is a snapshot of current financial position, while cash flow shows the movement of cash over time.

Q5: How can a company improve its working capital?
A: Strategies include accelerating accounts receivable collection, managing inventory efficiently, and negotiating better payment terms with suppliers.