Working capital calculator

$50,000 of working capital is a cushion you could count. That is the difference between this figure and the current ratio, which turns the same two numbers into 1.5 and loses the scale.

Both are useful and they answer different questions. A ratio compares a corner shop to a manufacturer. An amount tells you whether the cushion covers next month's payroll. Comparing working capital across businesses of very different sizes is where the amount stops being informative.

The second case, $80,000 of assets against $100,000 of bills, gives negative $20,000. In many businesses that is a warning. In some it is the business model: a retailer who is paid at the till and pays suppliers 60 days later runs on other people's money by design.

What separates the two is timing, which is why the cash conversion cycle is the natural companion. It measures how many days cash is tied up, and that is the question a negative balance actually raises.

Collecting receivables faster raises it. Holding less inventory raises it. Paying suppliers later raises it. Taking on short term debt to fund long term assets lowers it, which is the classic way an expanding business runs out of room while looking profitable.

Growth consumes working capital, because inventory and receivables grow before the cash from them arrives. That is why fast growing businesses can need funding despite rising profits.

The money available to run the business day to day, measured on one date from two balance sheet totals. It pairs with a ratio for comparison and with a cycle measure for timing. Working capital covers the concept, and how working capital works covers its use. This is educational material, not financial advice.