This Working Capital Calculator accurately determines the difference between current assets and current liabilities, as well as the related current ratio, which is vital for assessing short-term liquidity.
Welcome to the **Working Capital Calculator**. Working Capital ($W$) represents the capital available to a business for day-to-day operations. It is derived from Current Assets ($C$) and Current Liabilities ($L$). This tool also incorporates the Current Ratio ($R$), where $R = C/L$. Input any three of these four variables to quickly solve for the missing component.
Working Capital Calculator
Working Capital Formula
The core relationship is $C = W + L$.
1. Solve for Working Capital (W):
$$ W = C – L $$
2. Solve for Current Assets (C):
$$ C = W + L \quad \text{or} \quad C = R \times L $$
3. Solve for Current Liabilities (L):
$$ L = C – W \quad \text{or} \quad L = C / R $$
4. Solve for Current Ratio (R):
$$ R = C / L $$
Formula Source: Investopedia – Working Capital
Variables Explained
- C – Current Assets: Assets expected to be converted to cash within one year (e.g., cash, A/R, inventory).
- L – Current Liabilities: Debts due within one year (e.g., accounts payable, short-term loans).
- W – Working Capital: The difference between Current Assets and Current Liabilities ($C – L$).
- R – Current Ratio: The ratio of Current Assets to Current Liabilities ($C / L$).
Related Calculators
What is Working Capital?
Working Capital ($W$) is a measure of a company’s short-term financial health and operational efficiency. It represents the liquid resources a company has available to meet its short-term obligations and fund its day-to-day operations. Positive working capital means that a company has sufficient funds to pay off its current liabilities.
While positive working capital is generally good, having too much can indicate a company is not investing its excess cash efficiently. Conversely, negative working capital (where current liabilities exceed current assets) may signal short-term liquidity problems, but it can also be common and sustainable in certain industries (like supermarkets) with fast inventory turnover.
The Working Capital figure, alongside the Current Ratio, is a primary measure used by creditors and analysts to gauge a company’s short-term solvency and operational stability. It’s a vital component of the cash conversion cycle.
How to Calculate Current Assets (Example)
Assume a company knows its **Working Capital (W)** is **$100,000**, **Current Liabilities (L)** are **$100,000**, and the **Current Ratio (R)** is **2.0**.
- Determine the Missing Variable: Current Assets ($C$) is missing.
- Apply Formula (using $W$ and $L$): $C = W + L$.
- Substitute Values: $C = \$100,000 + \$100,000$.
- Determine Current Assets: $C = \$200,000$. The Current Assets are **$200,000.00**.
- Consistency Check (using $R$): Does $R \approx C / L$? $2.0 \approx \$200,000 / \$100,000$. Yes, $2.0 = 2.0$.
Frequently Asked Questions (FAQ)
A positive working capital figure is generally desirable. The exact amount is less important than the Current Ratio (R), as $R$ normalizes the figure for company size. A Current Ratio of 1.5 to 2.0 is often considered healthy.
Can a company have negative Working Capital and still be healthy?Yes. Companies with very efficient operations, like quick-service restaurants or retailers that sell inventory fast and collect cash immediately, can sustain negative working capital because their cash flow is predictable and quick.
How does the Current Ratio relate to Working Capital?The Current Ratio ($R = C/L$) is the relative measure of liquidity, while Working Capital ($W = C – L$) is the absolute dollar amount. Both express the same underlying relationship between current assets and liabilities.
What are the main components of Current Assets (C)?Current Assets primarily include Cash and Cash Equivalents, Accounts Receivable, and Inventory.