Working Capital Calculator
Measure your company's short-term liquidity. Find out whether you have enough capital to meet obligations and avoid cash flow squeezes.
What is Working Capital?
Working Capital — also referred to as Net Working Capital (NWC) — is the difference between current assets (what your company owns or expects to collect within 12 months) and current liabilities (what it owes within 12 months). It is one of the core liquidity indicators under both IFRS and UK GAAP.
It is the financial cushion that protects a business from cash flow crises. Positive working capital means the company can meet its short-term obligations with its short-term assets, without resorting to emergency funding.
The current ratio turns this figure into a metric comparable across companies. A ratio of 1.5x means the company holds £1.50 of current assets for every £1.00 of current liabilities.
The 3 liquidity ratios you should know
Financial analysts use three progressively stricter ratios to assess a company's liquidity:
| Ratio | Formula | Healthy benchmark | What it excludes |
|---|---|---|---|
| Current Ratio | CA ÷ CL | ≥ 1.5x | — |
| Quick Ratio (Acid Test) | (CA − Inventory) ÷ CL | ≥ 1.0x | Inventory (less liquid) |
| Cash Ratio | Cash ÷ CL | ≥ 0.2x | Everything except cash and equivalents |
The quick ratio is especially useful for inventory-heavy businesses, because stock can take weeks or months to convert into cash and shouldn't be counted as immediate liquidity.
When negative working capital can be normal
Negative working capital is usually a warning sign — but there are important exceptions. Businesses with cash-on-delivery or upfront payment models (supermarkets, online retailers, restaurants, hospitality) collect from customers before paying suppliers.
In those cases, current liabilities include trade payables that haven't yet fallen due, while the cash from customers is already in the bank. The ratio looks weak, but the cash cycle is positive.
Rule of thumb: Analyse working capital together with the Cash Conversion Cycle (CCC = DSO + DIO − DPO). A negative CCC means the business model generates liquidity on its own — and negative NWC can be healthy in that context.
Warning signs on the balance sheet
These four balance-sheet patterns are often overlooked by SMEs but signal serious liquidity issues:
Current liabilities exceed current assets. The company doesn't have enough current assets to cover its short-term obligations. Solution: factoring to convert invoices into immediate cash.
You collect late but pay early — the worst possible setup for cash flow. Every month that passes increases the working capital requirement. Optimise DSO with invoice financing.
If most of your current assets are slow-moving stock, real liquidity is much weaker than the headline ratio suggests. Review your inventory policy and compare current ratio with quick ratio.
Bank loans maturing in the next 12 months inflate current liabilities sharply. Renegotiate terms or refinance before the cash flow pressure sets in.
Frequently Asked Questions
Track this metric automatically
Connect your ERP and monitor this KPI in real time on your Advanta dashboard.
Improve your working capital with factoring
Convert invoices into cash in 24-48 hours. Factoring is the most direct way to improve working capital without taking on traditional bank debt — a common alternative to a UK overdraft on standard B2B 30-day terms.