Calculate working capital and liquidity ratios
Enter your current asset and liability items from the balance sheet; the calculator works out net working capital, the current ratio and the quick ratio.
Working capital is the difference between the assets a business will turn into cash within a year and the obligations it must settle within the same year. It measures its ability to fund day-to-day activity: buying stock, paying salaries and suppliers, while waiting to collect from customers.
The working capital calculator works out that difference from your balance sheet and shows the current ratio and quick ratio alongside it, plus the cash conversion cycle if you enter sales and cost of goods sold. For the term itself, see net working capital in the Qoyod glossary.
What is the working capital calculator?
A free tool that calculates net working capital, the current ratio and the quick ratio from current asset and liability items. It updates instantly with no submit button and, on request, shows inventory days, collection days and payment days, and the cash conversion cycle from them.
How is working capital calculated?
- Net working capital: current assets − current liabilities.
- Current ratio: current assets ÷ current liabilities.
- Quick ratio: (current assets − inventory) ÷ current liabilities.
Example: a business has cash of 200,000, receivables of 350,000, inventory of 300,000 and other current assets of 50,000, so current assets are 900,000. It owes payables of 250,000, short-term borrowings of 150,000 and other current liabilities of 100,000, so current liabilities are 500,000. Net working capital is 900,000 − 500,000 = 400,000, the current ratio is 900,000 ÷ 500,000 = 1.8, and the quick ratio is (900,000 − 300,000) ÷ 500,000 = 1.2.
The calculator's quick ratio excludes inventory only from current assets, because inventory may not turn into cash quickly.
How is the cash conversion cycle calculated?
The cash conversion cycle is the number of days between a business paying its suppliers and collecting from its customers:
- Inventory days: inventory ÷ cost of goods sold × days in the period.
- Collection days: receivables ÷ sales × days in the period; credit sales are more accurate if you have them.
- Payment days: payables ÷ cost of goods sold × days in the period.
- Cash conversion cycle: inventory days + collection days − payment days.
The calculator uses 365 days unless you change it, calculates days on the balances entered, and uses cost of goods sold in place of purchases for payment days. To work out cost of goods sold itself from inventory and purchases, use the COGS and inventory turnover calculator. For more on the cycle, see working capital cycle.
How to read the result
There is no single right ratio for every business; compare it with your own past periods or with the published accounts of similar companies. That is why the calculator neither colours nor grades the result; it only shows which side is larger.
Negative working capital is not necessarily a risk in businesses that collect quickly. A shop that sells for cash and pays its suppliers weeks later can have current liabilities above current assets and still run smoothly.
What the calculator leaves out
- Cash flow: working capital is a balance at a point in time; cash flow is the movement of cash over a period.
- Profitability: to work out earnings before interest, tax, zakat, depreciation and amortisation, use the EBITDA calculator.
- Classifying items: the calculator adds up what you enter; it does not decide whether an item is current or non-current.
Where the figures come from
Current asset and liability balances are in the balance sheet; sales and cost of goods sold are in the income statement. In Qoyod, the balance sheet and the customer aging report are available on the Basic plan, and the cash flow statement on the Pro plan and above.
Why use the Qoyod working capital calculator
- Three measures together: net working capital, current ratio and quick ratio.
- Cash conversion cycle: inventory, collection and payment days on request.
- Any period: a year, a quarter or a month by changing the days.
- No ready-made verdict: the figures as they are, to compare with your own past periods.
Got questions?
Straight answers to what business owners and accountants ask about working capital.
How is net working capital calculated?
Subtract current liabilities from current assets. With current assets of 900,000 and current liabilities of 500,000, net working capital is 400,000.
What is the difference between the current ratio and the quick ratio?
The current ratio divides all current assets by current liabilities; the quick ratio first excludes inventory, because it may not turn into cash quickly.
What is a good current ratio?
There is no single right ratio for every business; compare it with your own past periods or with the published accounts of similar companies. That is why the calculator does not grade the result.
Is negative working capital a problem?
Not necessarily. Negative working capital is not necessarily a risk in businesses that collect quickly, such as a shop that sells for cash and pays its suppliers weeks later.
How is the cash conversion cycle calculated?
Inventory days plus collection days, minus payment days. The calculator uses 365 days unless you change it, and uses cost of goods sold in place of purchases for payment days.
Where do I get the figures?
Current assets and liabilities come from the balance sheet; sales and cost of goods sold from the income statement. In Qoyod, the balance sheet is available on the Basic plan.