Home
Back
Working Capital Formula:
| From: | To: |
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 operational efficiency by calculating the difference between current assets and current liabilities.
The calculator uses the working capital formula:
Where:
Explanation: Positive working capital indicates that a company can pay off its short-term liabilities with its short-term assets, while negative working capital suggests potential liquidity problems.
Details: Calculating working capital is crucial for assessing a company's operational efficiency, financial stability, and ability to meet short-term obligations. It helps businesses manage cash flow, plan for growth, and avoid liquidity crises.
Tips: Enter current assets and current liabilities in your preferred currency. Both values must be non-negative numbers. The calculator will compute the working capital requirement.
Q1: What constitutes current assets?
A: Current assets include cash, accounts receivable, inventory, marketable securities, prepaid expenses, and other liquid assets expected to be converted to cash within one year.
Q2: What are current liabilities?
A: Current liabilities include accounts payable, short-term debt, accrued expenses, taxes payable, and other obligations due within one year.
Q3: What is a good working capital ratio?
A: A working capital ratio (current assets ÷ current liabilities) between 1.2 and 2.0 is generally considered healthy, though this varies by industry.
Q4: Can working capital be too high?
A: Yes, excessively high working capital may indicate inefficient use of resources, such as too much cash sitting idle or excessive inventory levels.
Q5: How often should working capital be calculated?
A: Working capital should be monitored regularly, typically monthly or quarterly, to ensure ongoing financial health and operational efficiency.