Working Capital Calculator
Working capital, current ratio, quick ratio and cash ratio, plus the cash conversion cycle from DSO, DIO and DPO — and what each day of it costs you.
Working Capital Calculator: with the default inputs, working capital is $250,000.
Everything expected to turn into cash within a year: cash, receivables, inventory, prepaid expenses.
Everything due within a year: payables, accruals, the current portion of long-term debt, deferred revenue.
Excluded from the quick ratio, because you can't pay a supplier in half-finished widgets.
Average days from invoicing a customer to getting paid.
Average days stock sits before it sells.
Average days you take to pay your own suppliers. Free financing, up to the point it costs you a discount or a relationship.
Used to price each day of the cash conversion cycle.
- In words
- Working capital of $250,000, a current ratio of 2 and a quick ratio of 1.12. The cash conversion cycle runs 81 days, tying up about $443,836.
- Current ratio
- 2
- Quick ratio (acid test)
- 1.12
- Cash ratio
- 0.32
- Cash conversion cycle
- 81Days between paying for inventory and collecting from the customer.
- Operating cycle
- 111DIO + DSO, before supplier credit is taken into account.
- Quick assets
- $280,000
- Working capital as % of revenue
- 12.5%
- Cash tied up by the cycle
- $443,836Cash conversion cycle × daily revenue — roughly what the cycle costs you in permanent funding.
- Cost of one day of cycle
- $5,479Cut the cycle by a day and this is the cash you get back, once.
Assumptions
- Ratios are point-in-time, computed from a single balance-sheet date.
- Quick assets are current assets less inventory and prepaid expenses; marketable securities are assumed to be inside current assets and liquid.
- The cash conversion cycle uses the day-counts you enter directly, and cash tied up is priced at revenue ÷ 365.
- No adjustment for receivable quality, customer concentration, or deferred revenue sitting in current liabilities.
| Ratio | Value | Counts as liquid |
|---|---|---|
| Current ratio | 2 | Everything current — cash, receivables, inventory, prepaid |
| Quick ratio (acid test) | 1.12 | Cash, marketable securities and receivables only |
| Cash ratio | 0.32 | Cash and equivalents only — the worst case |
Each row strips out one more assumption about how fast an asset becomes money. The gap between the first and the last is where liquidity crises hide.
| Change | New cycle (days) | Cash released |
|---|---|---|
| Collect 5 days faster (DSO −5) | 76 | $27,397 |
| Collect 10 days faster (DSO −10) | 71 | $54,795 |
| Turn inventory 10 days quicker (DIO −10) | 71 | $54,795 |
| Pay suppliers 10 days later (DPO +10) | 71 | $54,795 |
All four levers are worth the same per day. Which one you can actually pull is a different question — and stretching payables has a price, in forfeited early-payment discounts.
How this is worked out
The formula
Working capital = current assets − current liabilities Current ratio = current assets ÷ current liabilities Quick ratio = (current assets − inventory − prepaid expenses) ÷ current liabilities Cash ratio = cash and equivalents ÷ current liabilities Cash conversion cycle = DIO + DSO − DPO Operating cycle = DIO + DSO Cash tied up = cycle in days × (annual revenue ÷ 365)
Open How it’s calculated above to see this worked through with your own numbers.
What you enter
- Current assets
- Everything expected to turn into cash within a year: cash, receivables, inventory, prepaid expenses.in dollars · 0 or more · defaults to 500000
- Current liabilities
- Everything due within a year: payables, accruals, the current portion of long-term debt, deferred revenue.in dollars · 0 or more · defaults to 250000
- Inventory
- Excluded from the quick ratio, because you can't pay a supplier in half-finished widgets.in dollars · 0 or more · defaults to 200000
- Cash and equivalents
- A number.in dollars · 0 or more · defaults to 80000
- Prepaid expenses and other non-quick assets(under More options)
- Also excluded from the quick ratio — a prepaid insurance premium can't be turned into cash to meet a payable.in dollars · 0 or more · defaults to 20000
- Days sales outstanding (DSO)
- Average days from invoicing a customer to getting paid.from 0 to 365 · defaults to 45
- Days inventory outstanding (DIO)
- Average days stock sits before it sells.from 0 to 365 · defaults to 66
- Days payable outstanding (DPO)
- Average days you take to pay your own suppliers. Free financing, up to the point it costs you a discount or a relationship.from 0 to 365 · defaults to 30
- Annual revenue
- Used to price each day of the cash conversion cycle.in dollars · 0 or more · defaults to 2000000
What you get back
- Working capitalmain answer
- In words
- Current ratio
- Quick ratio (acid test)
- Cash ratio
- Cash conversion cycle
- Days between paying for inventory and collecting from the customer.
- Operating cycle
- DIO + DSO, before supplier credit is taken into account.
- Quick assets
- Working capital as % of revenue
- Cash tied up by the cycle
- Cash conversion cycle × daily revenue — roughly what the cycle costs you in permanent funding.
- Cost of one day of cycle
- Cut the cycle by a day and this is the cash you get back, once.
What this assumes
- Ratios are point-in-time, computed from a single balance-sheet date.
- Quick assets are current assets less inventory and prepaid expenses; marketable securities are assumed to be inside current assets and liquid.
- The cash conversion cycle uses the day-counts you enter directly, and cash tied up is priced at revenue ÷ 365.
- No adjustment for receivable quality, customer concentration, or deferred revenue sitting in current liabilities.
About this calculator
Working capital is the money the business needs just to keep operating: stock on the shelves and invoices out with customers, less whatever your suppliers are willing to fund. It is the difference between current assets and current liabilities, and it is the reason profitable companies go bust — profit is an opinion recorded when you ship, cash is a fact recorded when you're paid, and the gap between the two has to be funded by somebody.
The three liquidity ratios, from generous to brutal
- Current ratio = current assets ÷ current liabilities. $200,000 over $100,000 is 2.0. It counts everything current as liquid.
- Quick ratio (acid test) strips out inventory and prepaid expenses, because you cannot pay a supplier in half-finished widgets or in next year's insurance premium.
- Cash ratio counts only cash. It's the ratio a lender reaches for when things are going wrong.
Each one removes an assumption about how quickly an asset becomes money. A current ratio says nothing about the quality of what's in it. A ratio of 2.5 built from ninety-day receivables from one shaky customer and a warehouse of last season's stock is far more dangerous than 1.1 made of cash. If the current ratio is comfortable and the quick ratio isn't, the liquidity is inventory, and inventory is only liquid when someone wants it.
The cash conversion cycle is the better question
Ratios are a snapshot; the cycle is a movie. DIO + DSO − DPO measures the days between paying for something and getting paid for it. On the defaults — 66 days of inventory, 45 days to collect, 30 days of supplier credit — the cycle is 81 days, and at $2m of revenue that's roughly $444,000 of cash permanently out of the business. Every day you take off the cycle hands that money back, once, and it stays back.
A negative cycle is the prize. Supermarkets sell for cash in days and pay suppliers in weeks; Amazon has run a negative cycle for most of its life. Those businesses generate cash by growing, which is why they can grow without raising money. A company with a long positive cycle consumes cash as it grows, which is the single most common reason a fast-growing, profitable business runs out of money.
How to read the results
Compare the current ratio to your own trend and your sector, not to the "2.0 is healthy" rule of thumb, which came from 1920s manufacturing and has been misapplied ever since. Watch the quick ratio if inventory is a large share of current assets. And treat working capital as a percentage of revenue: if it's 20% of sales, then every extra $1m of revenue needs $200,000 of funding before it earns you anything.
Where these measures mislead
They're all measured on one date, and any of them can be dressed up for a reporting date by delaying payments or pushing a collection. They say nothing about concentration — one customer at 60% of receivables is a different risk from fifty at 2%. Deferred revenue sits in current liabilities and depresses every ratio, even though it's cash you've already collected and will never repay. And a very high current ratio is a signal too, usually of idle cash or assets nobody wants.
Frequently asked questions
▸What is a good current ratio?
Between roughly 1.2 and 2.0 for most businesses, but the honest answer is that it depends on the cash conversion cycle. Supermarkets run below 1.0 safely because they collect in days; a heavy manufacturer collecting in 90 days needs far more cushion.
▸What's the difference between the current ratio and the quick ratio?
The quick ratio removes inventory and prepaid expenses. If the two are far apart, most of your apparent liquidity is stock — fine if it turns quickly, dangerous if it's seasonal, custom or obsolescent.
▸What is the cash conversion cycle?
Days inventory outstanding plus days sales outstanding minus days payable outstanding: the number of days between paying for goods and collecting from the customer. It's the amount of time your money is somebody else's.
▸Can working capital be negative and the business be fine?
Yes. Negative working capital with a negative cash conversion cycle — collect fast, pay slowly — means customers fund the business. Supermarkets and subscription companies with large deferred revenue balances do this deliberately.
▸How much working capital does a growing business need?
Roughly its working capital as a percentage of revenue, applied to the growth. If working capital is 20% of sales, every extra $1m of revenue needs $200,000 of funding up front. That's why profitable, fast-growing companies run out of cash.
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The questions people ask next to a working capital.
Inventory turnover ratio, days inventory outstanding and the reorder point from lead time and safety stock — with the cost of the cash sitting on your shelves.
Bankruptcy-risk screen from five balance-sheet ratios — the original 1968 model plus the private-firm and service variants, with distress, grey and safe zones.
Months of runway, the zero-cash date and the burn multiple from cash, spend, revenue and growth — with the month it turns cash-flow positive, if it does.
The annualized cost of skipping an early-payment discount on terms like 2/10 net 30 — and whether borrowing to take it beats holding the cash.
Straight-line, declining balance, double-declining and sum-of-the-years'-digits depreciation with a full year-by-year schedule and book value at every point.
Units and revenue needed to break even from fixed costs, price and variable cost per unit, plus contribution margin and a target-profit option.