Enter your current assets and current liabilities to calculate net working capital, the current ratio and the quick ratio instantly. Free, with no sign-up.
What is working capital?
Working capital is the money a business has available to run its day-to-day operations. It is the difference between what the company owns that will turn into cash within a year (current assets) and what it owes within a year (current liabilities). It is one of the most widely used measures of short-term financial health and liquidity.
Working capital formula
Net working capital = Current assets − Current liabilities
Current ratio = Current assets ÷ Current liabilities
Quick ratio = (Current assets − Inventory − Prepaid expenses) ÷ Current liabilities
Current assets include cash and bank balances, marketable securities, accounts receivable, inventory and prepaid expenses. Current liabilities include accounts payable, short-term borrowings, the current portion of long-term debt, accrued expenses and taxes payable.
Worked example
A trading company has current assets of ₹5,00,000 (including ₹1,50,000 of inventory and ₹20,000 of prepaid expenses) and current liabilities of ₹3,00,000.
- Net working capital = ₹5,00,000 − ₹3,00,000 = ₹2,00,000
- Current ratio = 5,00,000 ÷ 3,00,000 = 1.67
- Quick ratio = (5,00,000 − 1,50,000 − 20,000) ÷ 3,00,000 = 1.10
The company can comfortably cover its short-term obligations even without selling any inventory, so its liquidity is healthy.
How to interpret your result
- Current ratio below 1.0: liabilities exceed liquid assets, which is a possible liquidity risk.
- 1.2 to 2.0: generally healthy for most industries.
- Above 2.5–3.0: may indicate idle cash, slow-moving inventory or slow collections.
Always compare against industry peers and the company's own history. Want deeper analysis? Try the full Financial Ratio Analyzer or the Cash Conversion Cycle calculator.
Frequently asked questions
What is the formula for working capital?
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Working capital = Current assets − Current liabilities. Current assets include cash, receivables, inventory and prepaid expenses; current liabilities include payables, short-term loans and accrued expenses due within 12 months.
What is a good working capital ratio?
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A current ratio (current assets ÷ current liabilities) between 1.2 and 2.0 is generally considered healthy. Below 1.0 suggests the business may struggle to pay short-term obligations; well above 2.0 may mean cash or inventory is sitting idle.
Can working capital be negative?
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Yes. Negative working capital means current liabilities exceed current assets. It is a warning sign for most businesses, but retailers and subscription businesses that collect cash before paying suppliers often operate with negative working capital safely.
What is the difference between the current ratio and the quick ratio?
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The current ratio uses all current assets. The quick (acid-test) ratio excludes inventory and prepaid expenses, because they cannot be turned into cash quickly, so it is a stricter test of liquidity.
How can a company improve its working capital?
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Collect receivables faster, reduce excess inventory, negotiate longer supplier payment terms, refinance short-term debt into long-term debt, or inject equity.
Is working capital the same as cash flow?
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No. Working capital is a balance-sheet snapshot at one point in time, while cash flow measures cash moving in and out over a period. Changes in working capital do, however, affect operating cash flow.