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Will this business have enough cash to keep running? Working capital, in two numbers.
See the short-term cash a business has to cover payroll, inventory and bills in the first weeks after a sale closes, and why its level gets negotiated.
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Business Calculators / Working Capital Calculator
Working Capital Calculator
Also known as working capital.
Current assets / current liabilities.
How it is calculated
For educational purposes only and not a substitute for professional financial advice.
Working capital measures a business's ability to meet its short-term obligations and keep operating. It is current assets minus current liabilities, and it is a key indicator of liquidity and financial health.
In a sale, it matters twice: the buyer needs enough of it on day one to make payroll and restock, and the purchase agreement usually sets a level the seller must leave in the business. Use this calculator to estimate a business's working capital and its working capital ratio, two common measures of short-term financial strength.
Questions
Working Capital Calculator: frequently asked questions
What is working capital, and how is it calculated?
It is the short-term money a business has to operate: Current Assets - Current Liabilities = Working Capital. With $250,000 of current assets and $140,000 of current liabilities, working capital is $110,000.
Why is working capital important?
It is what pays the bills between a sale and the cash coming in. A business with too little can be profitable on paper and still run short of cash.
How much working capital should a business have?
Enough to cover a normal operating cycle: payroll, rent, inventory and payables until customers pay. It varies by industry; a ratio between 1.0 and 1.5 is typical, and above that is comfortable.
What counts as current assets and current liabilities?
Current assets are cash, receivables, inventory and other items that turn into cash within a year. Current liabilities are bills and debts due within a year: payables, accrued payroll, rent and the current part of loans.
What is the working capital ratio, and what is a good number?
Current assets divided by current liabilities. Below 1.0 means bills exceed short-term resources; 1.0 to 1.5 is typical; above 1.5 suggests more flexibility.
Is working capital included in a business sale?
Often, yes. Many deals include a normal level of working capital, or a target the seller must deliver at closing, with the price adjusted up or down. It is a point to negotiate early.
Does working capital matter when financing a purchase?
Yes. Lenders often want working capital built into the loan or the buyer's cash, so the business is not starved of cash in its first months.
Is a high working capital ratio always good?
Not always. Very high ratios can mean idle cash or slow-moving inventory that could be put to better use.
Is this financial advice?
No. It is an educational estimate.
Next Step
Put these numbers to work on a real deal.
Buyer's EDGE is free: save target businesses, model each deal in the Acquisition Center and learn the process in Acquisition Academy. Selling? The Seller Portal starts a confidential sale. Either way, an EDGE advisor can help from the first conversation through closing, financing included.