What this calculator does
Working capital is the buffer between what a business owns short term and what it owes short term. Positive working capital means near-term obligations are covered; negative means they are not, at least on paper.
The turnover ratio is the more revealing figure. A business generating $1.8 million of revenue on $150,000 of working capital is turning it over 12 times a year. The same revenue on $50,000 would mean 36 turns, which is efficient but leaves very little margin for a delayed payment.
The formula
Working capital is current assets minus current liabilities. Turnover divides annual revenue by that figure, showing how many times the working capital cycles through the business in a year.
| Term | Meaning |
|---|---|
| Working capital | Current assets less current liabilities, in dollars rather than as a ratio. |
| Working capital turnover | Annual revenue divided by working capital. Higher means it is working harder. |
| Negative working capital | When current liabilities exceed current assets, which some business models sustain deliberately. |
The inputs explained
| Field | What to enter |
|---|---|
| Current assets ($) | Total current assets. |
| Current liabilities ($) | Total current liabilities. |
| Annual revenue ($) | Annual revenue, used for the turnover figure. |
When to use it
Checking whether growth is affordable
Growing revenue usually demands more working capital, and running out of it is a common cause of failure in profitable businesses.
Assessing efficiency
A high turnover means the business supports a lot of trade on a small short-term capital base.
Preparing a funding request
A working capital facility is sized against this figure and the cycle behind it.
Worked examples
Every figure in the tables below is produced by this page’s own calculator at build time, so the numbers and the tool always agree. Select any row to load that scenario.
How hard is the working capital working?
The same revenue supported by three levels of working capital.
| Current assets | Working capital | Working capital turnover |
|---|---|---|
| $350k | $50,000.00 | 36.00× |
| $450k | $150,000.00 | 12.00× |
| $550k | $250,000.00 | 7.20× |
Questions
Can negative working capital be healthy?
Sometimes, yes. Supermarkets and some subscription businesses collect from customers before paying suppliers, so they run negative working capital by design and effectively finance themselves from the float. For most businesses, though, it signals strain.
Why can a profitable business run out of cash?
Because profit and cash are not the same thing. Growth ties up cash in stock and receivables before the sales convert, so a rapidly growing company can be profitable on paper and unable to pay its bills.
Is a higher turnover always better?
Up to a point. High turnover means capital is being used efficiently, but past a certain level it means there is no cushion at all, and one late payment from a large customer can cause real trouble.
How is this different from the current ratio?
They use the same two numbers. Working capital is the difference in dollars, the current ratio is the quotient. The dollar figure tells you the size of the buffer; the ratio tells you its proportion.
For the ratio view of the same figures, see the liquidity ratios calculator. For how long cash stays tied up, see the cash conversion cycle calculator.