Working Capital

A printable cheatsheet with calculations
and notes

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Working Capital

Working Capital =

Current assets - Current liabilities

INTERPRETATION

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.

EXAMPLE

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.

Working Capital:

ABBREVIATION KEY:

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.