The formula
How to calculate working capital
Working capital is the money tied up in the operating cycle: stock bought, goods sold on credit, suppliers paid. Positive working capital funds the gap between paying out and being paid; negative working capital means suppliers are funding it for you.
The revenue comparison matters more than the absolute figure. £160,000 of working capital is generous for a £2.4 million business and dangerously thin for a £24 million one.
Here is what each field means:
- Current assets
- Current liabilities
- Annual revenue
No submit button: type and the answer moves. Your inputs end up in the link, so the page can be shared already filled in.
The order the fields are filled in makes no difference to the result — the calculator recomputes the whole formula from whatever is currently in every field, not step by step. That means it is safe to adjust one number, watch the result change, and adjust it back, without worrying about resetting anything first.
Why working capital matters
The formula behind working capital is standard and has not changed in decades; what changes is the situation it gets applied to. Two households can run the identical calculation and land on very different conclusions once their own numbers — income, rate, term, balance — are dropped in, which is why a generic textbook example is less useful than a calculator you can adjust to match your own circumstances.
It is also useful as a sense check before signing anything. A quote, an offer letter or a spreadsheet from someone else can contain an error, an optimistic assumption, or simply a different convention for rounding — running the same inputs through an independent calculator is a quick way to confirm a number before relying on it.
The reason a page like this exists at all, rather than leaving the calculation to a spreadsheet or a textbook appendix, is that the formula behind working capital is fiddly enough to get wrong by hand but not complicated enough to need specialist software. That middle ground — real enough maths to matter, simple enough to check instantly — is exactly what a dedicated calculator is for, and it is why the same figure recalculated here should match a careful manual calculation almost exactly.
In practice, most people arrive at a page like this one having already tried a version of the calculation by hand or in a spreadsheet, and use the calculator here to confirm it rather than replace it. That is a reasonable way to use it — the two should agree to the last decimal place if the same inputs and the same formula are used, and if they do not, the formula shown above is the one to check your own working against first.
Worked example
Work through the defaults on this page:
- Current assets: 480,000
- Current liabilities: 320,000
- Annual revenue: 2,400,000
That gives:
- Working capital: 160,000
- Working capital as a share of revenue: 6.67 %
- Days of revenue it represents: 24.33 days
These figures are only the calculator's own starting values, included so the working is visible rather than hidden inside the tool above. Replace them with your own numbers and the same arithmetic applies — nothing about the method changes, only the inputs feeding it.
Reading the result
Growth consumes working capital. Doubling sales usually means doubling stock and receivables while supplier terms stay the same, which is why profitable, fast-growing businesses run out of cash.
Where this goes wrong. More is not better. Excess working capital is cash sitting in slow stock and unpaid invoices, earning nothing. The goal is enough to operate safely and no more.
A useful check on any unfamiliar result is to compare it against a rough mental estimate first — round the inputs to convenient numbers and see whether the calculator's answer lands in roughly the same territory. A wildly different figure usually means one of the fields was entered in the wrong unit, most often a percentage typed as a whole number where a decimal was expected, or the reverse.
Yes, and for some business models it is a strength. Supermarkets and subscription businesses collect from customers before paying suppliers, so their customers effectively finance operations.
Enough to cover the cash conversion cycle plus a buffer. Businesses with 60-day receivables and 30-day payables need far more than those paid at the point of sale.
The headline figure is working capital. With 480,000 current assets, 320,000 current liabilities and 2,400,000 annual revenue, that comes to 160,000. Change any field and the figure moves with it.
Whenever one of the underlying figures changes — a new interest rate, a different balance, an updated term — since the result only reflects what is currently in the fields. There is no need to keep a separate record of past results; the web address for a filled-in version already carries the figures used to produce it.
Not unless a tax rate or a fee is explicitly one of the inputs above. Where it is not, the figure shown is a gross calculation, and any tax due depends on your personal circumstances and current tax rules, which are worth checking separately.
The arithmetic itself is exact — the calculator applies the formula shown above precisely, with no rounding until the final figure is displayed. The uncertainty, where it exists, is entirely in the inputs: an estimated rate or an approximate balance carries that same approximation through to the result.