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Working Capital =
Current assets - Current liabilities
Working capital shows the liquid reserve available to satisfy contingencies and uncertainties.
Business owners, managers, and other interested parties use the calculation to assess a company’s ability to make regular payments, cover unexpected costs, and weather difficult financial periods.
Note: expanded calculation
Subtract current liabilities from current assets. This is not a ratio but an absolute amount.
As listed on M&M company’s balance sheet, current assets consist of $300,000 in cash, inventory, and accounts receivable; current liabilities include $200,000 owed for accounts payable, wages, interest, and taxes.
Working capital = $300,000 – $200,000 = $100,000
M&M has $100,000 available NWC
BENCHMARK: HA, PG, ROT
The ideal amount of net working capital depends on your industry, individual circumstances, and other financial measures.
ROT: Rule of thumb
HA: Historical Average (organization’s historical average)
PG: Peer Group average
EB: Economic Benchmark
DISCLAIMER: The interactive calculators on this site are self-help tools intended to help you visualize and explore your financial information. They are not intended to replace the advice of a qualified professional. Because each business is different, we can not guarantee accuracy.