Working Capital Calculator

Calculate the difference between current assets and current liabilities.

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What is Working Capital?

Working Capital is the difference between a company’s current assets and current liabilities, measuring short-term financial health.

Working Capital is calculated by subtracting current liabilities from current assets, showing the net amount available for operations.

Understanding Working Capital helps assess a company’s ability to fund daily operations and short-term obligations without external financing.

Positive working capital indicates good liquidity, while negative working capital may signal potential cash flow problems.

Working capital needs vary by industry and business model, with some companies operating successfully with minimal or negative working capital.

Effective working capital management involves optimizing inventory levels, collection periods, and payment terms with suppliers.

Monitoring working capital trends helps identify seasonal patterns, growth funding needs, and operational efficiency improvements.

Working Capital Formula

\begin{gather*}\bold{Given{:}}\newline\begin{aligned}\text{Current Assets} &= \mathrm{CA}\newline\text{Current Liabilities} &= \mathrm{CL}\end{aligned}\newline\bold{Calculate{:}}\newline\text{Working Capital} = \mathrm{WC} \newline = \mathrm{CA} - \mathrm{CL}\end{gather*}

Working Capital Calculation Examples

Example 1

A technology startup has current assets of $750,000, including cash, accounts receivable, and inventory. Their current liabilities total $450,000, consisting of accounts payable, accrued expenses, and short-term debt.

To calculate their working capital:

\begin{gather*}\bold{Given{:}}\newline\begin{aligned}\text{Current Assets}\space(\mathrm{CA}) &= \mathrm{{\$}750{,}000}\newline\text{Current Liabilities}\space(\mathrm{CL}) &= \mathrm{{\$}450{,}000}\end{aligned}\newline\bold{Calculate{:}}\newline\text{Working Capital}\space(\mathrm{WC})\newline\begin{aligned}&= \mathrm{CA} - \mathrm{CL}\newline&= \mathrm{{\$}750{,}000} - \mathrm{{\$}450{,}000}\newline&= \mathrm{{\$}300{,}000}\end{aligned}\end{gather*}

The working capital of $300,000 indicates the company has substantial liquidity to fund operations and pursue growth opportunities.

This positive working capital provides a financial cushion and flexibility to handle unexpected expenses or invest in new projects without immediate financing needs.

Example 2

A retail business reports current assets of $300,000 and current liabilities of $400,000. The company is evaluating its short-term financial position and ability to expand operations.

Let's determine their working capital:

\begin{gather*}\bold{Given{:}}\newline\begin{aligned}\text{Current Assets}\space(\mathrm{CA}) &= \mathrm{{\$}300{,}000}\newline\text{Current Liabilities}\space(\mathrm{CL}) &= \mathrm{{\$}400{,}000}\end{aligned}\newline\bold{Calculate{:}}\newline\text{Working Capital}\space(\mathrm{WC})\newline\begin{aligned}&= \mathrm{CA} - \mathrm{CL}\newline&= \mathrm{{\$}300{,}000} - \mathrm{{\$}400{,}000}\newline&= \mathrm{-{\$}100{,}000}\end{aligned}\end{gather*}

The negative working capital of -$100,000 indicates potential liquidity challenges, as current liabilities exceed current assets.

This situation requires careful cash flow management and may limit the company's ability to invest in growth without securing additional financing or improving collection processes.

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