Finance Calculator
Working Capital Calculator
Estimate your net working capital, working capital ratio, and whether your business has a short-term funding gap. Enter your current assets and current liabilities to see an instant assessment.
Enter your current balance sheet items
What is Working Capital?
Working capital is the difference between a company's current assets and current liabilities. Positive working capital means the business can cover its short-term obligations; negative working capital may signal liquidity pressure.
How is working capital calculated?
Working capital is a fundamental measure of a business's short-term financial health. It represents the difference between what a business owns in the short term (current assets) and what it owes in the short term (current liabilities).
Net Working Capital = Current Assets - Current Liabilities
Working Capital Ratio = Current Assets - Current Liabilities
Current assets typically include cash, trade debtors, inventory, and other assets expected to be converted to cash within 12 months.
Current liabilities typically include trade creditors, overdrafts, short-term borrowings, and tax obligations due within 12 months.
A positive net working capital figure means the business has more short-term assets than obligations. A ratio above 1.0 confirms this. Ratios between 1.2 and 2.0 are generally considered healthy for most businesses.
Assumptions and caveats
- •This calculation uses a point-in-time snapshot. Working capital fluctuates throughout the month and year.
- •The quality of current assets matters. Overdue debtors or slow-moving stock may not convert to cash quickly.
- •Seasonal businesses may show very different results depending on when the calculation is performed.
- •This calculator does not assess the cash conversion cycle or debtor/creditor days.
Worked Example
Scenario
A manufacturing company has current assets of GBP 450,000 (including GBP 180,000 debtors, GBP 120,000 inventory, GBP 150,000 cash) and current liabilities of GBP 310,000.
Calculation
- Working Capital = Current Assets - Current Liabilities
- Working Capital = 450,000 - 310,000
- Working Capital = GBP 140,000
- Current Ratio = 450,000 / 310,000 = 1.45
What This Means
Positive working capital of GBP 140,000 and a current ratio of 1.45 indicate the business can comfortably meet its short-term obligations. A current ratio between 1.2 and 2.0 is generally considered healthy for UK SMEs. Below 1.0 signals potential liquidity risk. However, very high working capital can indicate inefficiency - capital tied up in debtors or inventory could potentially be deployed more productively.
Frequently asked questions
Working capital is the difference between current assets and current liabilities. It represents the short-term liquidity available to a business for day-to-day operations. Positive working capital means the business can cover its short-term obligations.
A working capital ratio between 1.2 and 2.0 is generally considered healthy. A ratio below 1.0 means current liabilities exceed current assets, which may indicate a short-term funding gap. A ratio significantly above 2.0 may suggest inefficient use of assets.
Common approaches include reducing debtor days through faster collections, negotiating longer payment terms with suppliers, managing inventory more efficiently, or accessing working capital finance such as invoice finance or revolving credit facilities.
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Speak to the Spark team about working capital solutions including invoice finance, revolving facilities, and short-term lending.
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