Working Capital Calculator
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Working Capital$50,000.00
Current Ratio1.50
Quick Ratio1.10
The Working Capital Calculator measures whether a business can cover its short-term obligations with its short-term resources. Subtracting current liabilities from current assets gives net working capital in dollars, while dividing the two produces the current ratio. Stripping inventory out of assets yields the stricter quick ratio. Together these three figures show how much liquidity cushion a company carries day to day.
Formula
working capital = current assets − current liabilities; current ratio = CA / CL; quick ratio = (CA − inventory) / CL
- CA
- Current assets due to convert to cash within one year
- CL
- Current liabilities payable within one year
- inventory
- Stock held for sale, excluded from the quick ratio
How it works
- Enter total current assets (cash, receivables, inventory, and other items convertible to cash within a year) and total current liabilities (bills due within a year).
- Working capital is current assets minus current liabilities, and the current ratio divides current assets by current liabilities.
- Enter inventory so the calculator can subtract it from assets and compute the quick ratio, a tighter liquidity test that excludes stock that may be slow to sell.
Worked example
A company reports $150,000 in current assets, $100,000 in current liabilities, and $40,000 of inventory.
- Working capital = 150,000 - 100,000 = $50,000.
- Current ratio = 150,000 / 100,000 = 1.5.
- Quick ratio = (150,000 - 40,000) / 100,000 = 1.1.
Working capital of $50,000, a current ratio of 1.5, and a quick ratio of 1.1.
Frequently asked questions
- What is a healthy current ratio?
- A current ratio between 1.5 and 3.0 is generally considered comfortable, signalling enough assets to cover near-term debts. A ratio below 1.0 means liabilities exceed assets, which can flag liquidity trouble.
- Why does the quick ratio exclude inventory?
- Inventory can be hard to convert to cash quickly, especially if it is slow-moving or must be discounted. The quick ratio drops it to test whether a firm can pay its bills using only its most liquid assets.
- Can working capital be negative?
- Yes. Negative working capital means current liabilities exceed current assets. Some efficient businesses run this way intentionally, but for most companies it signals potential difficulty meeting short-term obligations.
- How is working capital different from the ratios?
- Working capital is a dollar amount showing the absolute cushion, while the current and quick ratios are relative measures. A large company can have huge working capital yet a thin ratio, so the ratios add useful context.