Working Capital Calculator: Ratios and Cash Cycle
Enter current assets, current liabilities and inventory from your balance sheet, plus your collection, inventory and payment days. You get working capital, the current ratio, the quick ratio and the cash conversion cycle to judge short-term liquidity.
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Formula
Working capital = current assets − current liabilitiesCurrent ratio = current assets ÷ current liabilitiesQuick ratio = (current assets − inventory) ÷ current liabilitiesCash conversion cycle = DSO + DIO − DPO(in days)
Worked example
Current assets 250,000, current liabilities 150,000, inventory 80,000, DSO 45, DIO 60, DPO 30:
- Working capital: 250,000 − 150,000 = 100,000
- Current ratio: 250,000 ÷ 150,000 = 1.67
- Quick ratio: 170,000 ÷ 150,000 = 1.13
- Cash conversion cycle: 45 + 60 − 30 = 75 days
Another example
Current assets 90,000, current liabilities 60,000, inventory 30,000, DSO 30, DIO 40, DPO 45.
- Working capital: 90,000 − 60,000 = 30,000.
- Current ratio: 90,000 ÷ 60,000 = 1.50.
- Quick ratio: 60,000 ÷ 60,000 = 1.00.
- Cash conversion cycle: 30 + 40 − 45 = 25 days.
When to use it
Use it to check whether you can pay bills due within a year, before taking on a loan or growing stock, and to see where cash is tied up. Lenders often look at the same ratios.
Rules of thumb
A current ratio of roughly 1.5 to 2 is often called comfortable and a quick ratio near 1 or above is a common minimum, but norms differ by industry. Retailers and subscription firms can run lower than manufacturers.
Common mistakes
- Including long-term assets or liabilities.
- Treating a high ratio as always good. Idle cash and slow stock lift it.
- Using DSO, DIO and DPO measured over different periods.
How it differs
Working capital is a balance sheet snapshot. The runway calculator projects cash against burn, inventory turnover explains the DIO input, and the invoice late fee calculator deals with the receivable side.
Frequently asked questions
How do you calculate working capital?
Working capital is current assets minus current liabilities. With 250,000 of current assets and 150,000 of current liabilities, it is 100,000.
What is the difference between the current ratio and the quick ratio?
The current ratio is current assets ÷ current liabilities (250,000 ÷ 150,000 = 1.67). The quick ratio leaves out inventory first: (250,000 − 80,000) ÷ 150,000 = 1.13, a stricter test of short-term liquidity.
What is the cash conversion cycle?
It is the days between paying suppliers and collecting from customers: DSO + DIO − DPO. With 45 + 60 − 30 you wait 75 days. A shorter or negative cycle means cash comes back faster.
What is a good current ratio?
A ratio above 1 means current assets cover current liabilities. Healthy levels differ by industry, and a very high ratio can mean idle cash or slow-moving stock, so compare with similar businesses.
What does negative working capital mean?
Current liabilities exceed current assets, so short-term bills are larger than short-term resources. It is a warning for most businesses, but some, such as grocers or subscription companies that collect cash before paying suppliers, run negative by design. Look at the cash conversion cycle and cash flow, not the sign alone.
What is a good quick ratio?
As a rule of thumb, 1.0 or above means liquid assets cover short-term liabilities without selling stock. In the 90,000 example the quick ratio is exactly 1.00 against a current ratio of 1.50. Healthy levels vary by industry.
How can I shorten the cash conversion cycle?
Collect faster (lower DSO), hold less stock (lower DIO) or pay suppliers later (higher DPO). Cutting DSO from 45 to 35 days in the 75 day example brings the cycle to 65 days, which releases cash without raising sales. Do not stretch supplier terms so far that you damage the relationship.