Working Capital Calculator

What Is Net Working Capital?

Net working capital is the cash your business would have left if it paid every bill due in the next 12 months using only the assets it could turn into cash in that same window. It is calculated as current assets minus current liabilities, and it measures your short-term financial breathing room.

Owners watch it because it moves faster than profit. A business can be profitable on paper and still miss payroll if too much cash is tied up in inventory or unpaid invoices. If the concept is new, start with our plain-English guide to what working capital is and why it matters.

How Do You Calculate Working Capital?

Use the net working capital formula: current assets minus current liabilities. Add cash, accounts receivable, inventory, and other assets convertible to cash within 12 months, then subtract accounts payable, payroll, taxes, and debt payments due in the same period. A positive number is cushion; a negative number is a shortfall.

How Do You Calculate the Working Capital Ratio?

Divide current assets by current liabilities. A ratio of exactly 1 means assets and obligations match dollar for dollar, above 1 means you hold more short-term assets than short-term debts, and below 1 means obligations outweigh liquid assets. The calculator above computes it automatically and tells you where your result lands.

What Counts as Current Assets and Current Liabilities?

Current assets are cash plus anything expected to become cash within 12 months, like receivables and inventory. Current liabilities are everything due within 12 months, like payables, payroll, taxes, and upcoming loan payments. Long-term assets such as equipment and long-term debt such as a mortgage are excluded from both sides.

• Count as current assets: bank balances, accounts receivable, inventory, short-term investments, prepaid expenses you will use this year.
• Count as current liabilities: accounts payable, payroll and payroll taxes, sales tax collected, credit card balances, and the next 12 months of loan or advance payments.
• Leave out: equipment, vehicles, real estate, goodwill, and the portion of any debt due beyond 12 months.

What Is a Good Working Capital Ratio?

It depends on your industry and how fast your inventory and receivables convert to cash. As a general rule, a ratio above 1 means you can cover current obligations, and more room above 1 gives you a buffer for slow months. Read your number in context rather than in isolation.

A restaurant that turns inventory in days can run leaner than a contractor waiting 60 days on invoices, so compare against your own trend line first. For a deeper walk-through of reading the number, see our working capital ratio guide.

How Does the Math Work in Practice?

Take the calculator's default example: a business with $120,000 in current assets, $80,000 in current liabilities, and $25,000 in average monthly operating expenses. Subtracting liabilities from assets gives net working capital, dividing assets by liabilities gives the ratio, and dividing working capital by monthly expenses gives the cushion.

• Net working capital: $120,000 − $80,000 = $40,000
• Working capital ratio: $120,000 ÷ $80,000 = 1.50
• Months of cushion: $40,000 ÷ $25,000 = 1.6 months

At 1.50, this business covers its obligations with room to spare, but it could only run about a month and a half on cushion alone if revenue stopped. That is the kind of gap owners close before a slow season, not during one.