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🏦 Working Capital Calculator

Enter current assets and liabilities item-wise to get net working capital, current ratio, quick ratio and cash ratio.

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What is working capital?

Working capital is the money a business has available to run day-to-day operations β€” paying suppliers, salaries and bills while waiting for customers to pay. It is calculated as current assets minus current liabilities. Positive working capital means you can meet short-term obligations; negative working capital is a warning sign unless your business model collects cash before paying suppliers (like a retailer or a hospital with upfront billing).

Formulas

  • Net Working Capital = Current Assets βˆ’ Current Liabilities
  • Current Ratio = Current Assets Γ· Current Liabilities
  • Quick (Acid-Test) Ratio = (Current Assets βˆ’ Inventory βˆ’ Prepaid) Γ· Current Liabilities
  • Cash Ratio = (Cash + Short-term Investments) Γ· Current Liabilities
  • Working Capital Turnover = Annual Sales Γ· Net Working Capital

Worked example

A trading firm has cash β‚Ή2.5 lakh, debtors β‚Ή6 lakh, stock β‚Ή4.5 lakh, FDs β‚Ή1 lakh, prepaid β‚Ή0.5 lakh and other current assets β‚Ή0.5 lakh β€” total β‚Ή15 lakh. Its creditors are β‚Ή4 lakh, cash credit β‚Ή3 lakh, outstanding expenses β‚Ή0.8 lakh, taxes payable β‚Ή0.7 lakh, current loan instalments β‚Ή1.2 lakh and customer advances β‚Ή0.3 lakh β€” total β‚Ή10 lakh. Net working capital = β‚Ή5 lakh; current ratio 1.5:1; quick ratio (15 βˆ’ 4.5 βˆ’ 0.5) Γ· 10 = 1.0:1; cash ratio 0.35:1. With β‚Ή60 lakh annual sales, working capital turnover is 12x.

What the ratios mean

  • Current ratio 2:1 is the textbook ideal; Indian banks generally insist on at least 1.33:1 for cash-credit and working-capital limits (Tandon Committee second method).
  • Quick ratio 1:1 shows you can pay all current dues without selling stock.
  • A very high current ratio (4:1+) may mean idle cash or slow-moving inventory β€” money that could be earning more elsewhere.

What to include

Current assets: anything convertible to cash within 12 months β€” cash and bank, debtors, inventory, short-term deposits, prepaid expenses, GST input credit receivable, advances to suppliers. Current liabilities: dues within 12 months β€” trade creditors, CC/OD balances, outstanding salaries and expenses, GST/TDS/income-tax payable, the current year's instalments of term loans, and advances received from customers.

Uses

Preparing CMA data for bank limits, monthly MIS review, assessing a customer's creditworthiness from their balance sheet, and planning how much CC limit to apply for. The composition table shows which items dominate β€” if debtors are 40% of current assets, collection follow-up is your biggest lever.

Frequently Asked Questions

What is a good current ratio?

Between 1.5:1 and 2:1 for most trading and manufacturing businesses. Banks typically require a minimum of 1.33:1 for working-capital loans.

Why is inventory excluded from the quick ratio?

Inventory may take months to sell and may have to be discounted. The quick ratio tests whether you can pay dues from assets that are already cash or near-cash.

Can negative working capital be okay?

Yes for businesses that collect cash upfront and pay suppliers later β€” supermarkets, restaurants, subscription services. For a credit-sales business it signals a liquidity problem.

Which loan instalments are current liabilities?

The principal portion of term-loan EMIs falling due within the next 12 months. The rest of the loan is a long-term liability.

Disclaimer: This tool is for general information and estimation only. Tax rates and rules change β€” verify with official sources or a professional before acting. Read full disclaimer.