Working Capital Calculator

Working Capital: Working Capital = Current Assets − Current Liabilities Current Assets (convertible to cash within 12 months): Cash and cash equivalents Accounts receivable (customer money owed) Inventory (raw materials, work-in-progress, finished goods) Marketable securities Prepaid expenses Other current assets Current Liabilities (due within 12 months): Accounts payable (money owed to suppliers) Short-term debt and current portion of long-term debt Accrued expenses (unpaid salaries, taxes, utilities) Customer deposits Other current liabilities Current Ratio: Current Ratio = Current Assets / Current Liabilities Interpretation: < 1.0 — liquidity concerns (more obligations than resources) 1.0-1.5 — adequate liquidity but tight 1.5-3.0 — healthy range > 3.0 — possibly over-capitalized (cash not productively employed) Quick Ratio (Acid Test): Quick Ratio = (Current Assets − Inventory) / Current Liabilities Stricter test than current ratio. Excludes inventory because it may take time to sell. < 1.0 — relies on inventory liquidation to cover obligations 1.0+ — strong short-term liquidity even without inventory sales Cash Ratio (most conservative): Cash Ratio = Cash & Equivalents / Current Liabilities Extreme conservative measure — assumes nothing collected from receivables or sold from inventory. 0.2-0.5 typical Above 0.5 might indicate inefficient cash deployment Example: $50K cash + $75K AR + $100K inventory + $10K other = $235K current assets $60K AP + $30K short-term debt + $20K other = $110K current liabilities Working Capital: $235K − $110K = $125K Current Ratio: $235K / $110K = 2.14 Quick Ratio: ($235K − $100K) / $110K = 1.23 Cash Ratio: $50K / $110K = 0.45 Interpretation: healthy working capital, current ratio in good range, strong quick ratio (>1.0), adequate cash buffer. Working capital and business model: Different business models have different working capital patterns: Traditional retail/manufacturing: - Carries inventory (cash tied up) - Extends credit to customers (AR builds) - Pays suppliers on terms (AP builds) - Typically: high working capital requirements E-commerce direct-to-consumer: - Carries inventory - Customers pay at order (no AR build) - Suppliers paid on terms (AP build) - Typically: lower working capital than B2B retail SaaS/Subscription: - No inventory - Customers often pay upfront (deferred revenue = liability but cash received) - Minimal AP relative to revenue - Typically: negative working capital (advantageous) Service/Consulting: - No inventory - Customers typically pay on terms (AR builds) - Salaries dominate cost structure (immediate payment) - Typically: positive working capital, dominated by AR Restaurants: - Low inventory (perishable, quick turnover) - Customers pay at point of sale (no AR) - Suppliers paid on terms - Typically: negative working capital, strong cash position Working capital changes affect cash flow: Increase in Current Assets (more AR, more inventory): consumes cash Decrease in Current Assets: generates cash Increase in Current Liabilities (longer supplier terms): generates cash Decrease in Current Liabilities (paying down faster): consumes cash Cash Flow from Operations = Net Income + Non-cash items − Increase in Working Capital This is why fast-growing businesses often need more cash than profitable businesses — growth requires more working capital investment.