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How to Calculate Working Capital and Understanding Why it Is Important in Managing Your Business

Working capital measures a company's ability to meet its short-term financial obligations. It is calculated by subtracting current liabilities from current assets. The resulting figure represents the amount of money that a company has available to fund its day-to-day operations.

The formula for calculating working capital is as follows:

Working Capital = Current Assets - Current Liabilities

Current assets include cash, accounts receivable, inventory, and other assets that can be converted into cash within a year.

Current liabilities include accounts payable, short-term loans, and other obligations that are due within a year.

Here's an example of how to calculate working capital:

Current Assets:

Cash - $10,000

Accounts Receivable - $5,000

Inventory - $7,000

Total Current Assets - $22,000

Current Liabilities:

Accounts Payable - $6,000

Short-Term Loan - $4,000

Total Current Liabilities - $10,000

Working Capital = Current Assets - Current Liabilities

Working Capital = $22,000 - $10,000

Working Capital = $12,000

In this example, the company has a working capital of $12,000.

Why is Working Capital necessary in managing your business?

Working capital is essential for managing a business because it measures a company's liquidity and financial health. A positive working capital indicates that a company has enough funds to cover its short-term obligations and invest in future growth. On the other hand, negative working capital indicates that a company may struggle to meet its short-term obligations and face financial difficulties.

Effective working capital management is crucial for maintaining a healthy cash flow, meeting day-to-day expenses, and investing in growth opportunities. By regularly monitoring and managing their working capital, businesses can improve their financial performance, reduce financial risk, and maximize profitability.



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Access to working capital in an affordable and efficient manner is essential for business.

We recognize the need for customized solutions as each business has differing requirements.

SupplySci provides accounts payable and accounts receivable funding programs to meet your evolving liquidity requirements combined with our product procurement program.

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