Working Capital Calculator
Calculate your current working capital position and project how much you'll need 12 months from now based on your growth rate.
Cash + accounts receivable + inventory + prepaid expenses
Accounts payable + short-term debt + accrued expenses (due within 12 months)
Used to calculate quick ratio (excludes inventory)
Next 12 months
Default: 2.0
Healthy Current Ratio Benchmarks:
Services
1.5 - 2.5
Retail
1.5 - 2.0
Manufacturing
1.5 - 3.0
Restaurants
1.0 - 1.5
Working Capital
$100,000
Current Assets − Current Liabilities
Current Ratio
2.25
HealthyQuick Ratio
1.50
Excludes inventory
Most SMBs target 10-30%
In 12 months at 15% growth:
Your current ratio is in a healthy range, suggesting you can comfortably cover short-term obligations.
< 1.0
Stressed
1.0 - 1.5
Tight
1.5 - 3.0
Healthy
> 3.0
Strong / idle
Ways to Improve Working Capital
Shrink the gap between invoice and payment.
- Shorten terms (Net 15 vs Net 30)
- Offer 2% discount for early payment
- Automate reminders
- Accept cards / ACH
Inventory ties up cash without earning a return.
- Reduce slow-moving SKUs
- Use just-in-time ordering
- Negotiate consignment terms
- Track turnover by category
Extend supplier payment timelines without penalty.
- Move Net 30 to Net 45 or 60
- Time payments to due date
- Use a business credit card for float
- Consider a line of credit as backup
Frequently Asked Questions
How to calculate working capital
The working capital formula is straightforward: Working Capital = Current Assets − Current Liabilities. Both inputs come directly from your balance sheet, and the result tells you how much liquid capital is available to fund day-to-day operations after settling everything you owe in the next 12 months.
Current assets are anything that can be converted to cash within one year:
- Cash and cash equivalents — checking, savings, money market accounts
- Accounts receivable — invoices outstanding less than 90 days (older AR is often written down)
- Inventory — raw materials, work-in-progress, and finished goods at the lower of cost or market
- Prepaid expenses — rent, insurance, or software paid in advance
- Marketable securities — short-term investments that can be liquidated quickly
Current liabilities are anything you owe within 12 months:
- Accounts payable — outstanding supplier invoices
- Accrued expenses — wages, taxes, and utilities earned but not yet paid
- Short-term debt — credit lines, working-capital loans, and notes due within a year
- Current portion of long-term debt — the next 12 months of principal payments on multi-year loans
- Deferred revenue — customer prepayments for services not yet delivered
Worked example. A small e-commerce business has the following balance sheet:
| Item | Amount |
|---|---|
| Cash | $45,000 |
| Accounts receivable | $60,000 |
| Inventory | $60,000 |
| Prepaid expenses | $15,000 |
| Total current assets | $180,000 |
| Accounts payable | $35,000 |
| Accrued expenses | $15,000 |
| Short-term debt | $30,000 |
| Total current liabilities | $80,000 |
Working capital = $180,000 − $80,000 = $100,000. Current ratio = 180/80 = 2.25 (healthy). Quick ratio = (180 − 60)/80 = 1.50 (also healthy, even after excluding inventory).
Working capital ratio benchmarks
Two ratios matter most: the current ratio (current assets / current liabilities) and the quick ratio ((current assets − inventory) / current liabilities). Healthy benchmarks vary by industry because some businesses operate with thin margins and fast inventory turns while others sit on heavy stock or long receivables.
| Industry | Healthy Current Ratio | Healthy Quick Ratio |
|---|---|---|
| Professional services | 1.5 - 2.5 | 1.2 - 2.0 |
| Retail | 1.5 - 2.0 | 0.5 - 1.0 |
| Manufacturing | 1.5 - 3.0 | 0.8 - 1.5 |
| Restaurants | 1.0 - 1.5 | 0.8 - 1.2 |
| SaaS / Tech | 2.0 - 4.0 | 1.8 - 3.5 |
| Construction | 1.2 - 1.8 | 1.0 - 1.5 |
A quick ratio above 1.0 is generally considered healthy — you can cover every short-term obligation without selling inventory. Retail and restaurants often run quick ratios below 1.0 because of heavy stock and rapid cash sales, which is normal.
Another useful metric is days of working capital: how many days of operations you can fund from current capital. The formula is Working Capital ÷ (Annual Revenue ÷ 365). A business with $100,000 working capital and $750,000 revenue has 100,000 / (750,000/365) = 48.7 days of operations funded. Most lenders look for at least 30 days; cash-rich businesses often carry 60-90 days as a strategic buffer.
How working capital scales with growth
Growth has a hidden cost: it eats working capital. When revenue scales, accounts receivable scale with it (more invoices outstanding), inventory scales (more stock needed to fulfill demand), and payroll scales (more people to support the volume). This is the "growth tax" on working capital— and it's why fast-growing, profitable companies routinely run out of cash.
Worked example. A distribution business is doing $1,000,000 in annual revenue with $200,000 in working capital (a 20% working capital ratio). Management plans to grow 50% next year to $1,500,000. To maintain the same 20% ratio, they need:
- $1.5M × 20% = $300,000 in working capital
- That's $100,000 of additional capital required just to stay at the same liquidity level
- This $100,000 is on top of any new equipment, marketing spend, or hiring
Where does it come from? Three sources, in order of cost:
- Retained earnings — the cheapest source, but requires profit margins high enough to fund growth from cash flow
- Line of credit — flexible, interest-only on what you draw, perfect for AR/inventory financing
- Equity — most expensive (you give up ownership), only justified for transformative growth
This is why even profitable businesses often need a line of credit. Profitability is measured on the income statement (revenue − expenses), but liquidity lives on the balance sheet. A business can grow itself into a cash crunch — booking record sales on paper while unable to make payroll because every dollar is tied up in unpaid invoices and inventory. Planning working capital alongside your revenue forecast is what separates sustainable growth from the kind that flames out.