Calculating Working Capital

How do you calculate working capital? Why is it a key indicator of a company's liquidity? And how can you meaningfully interpret net current assets – whether as a founder, SME, or CFO? In this article, we explain step by step how to calculate working capital and what the results mean.

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What Is Working Capital?

Working Capital (also: net current assets) describes how much short-term capital a company has available to cover short-term liabilities.

Formula:

Working Capital = Current Assets – Current Liabilities

It shows whether a company has sufficient funds to remain financially flexible in the coming months.

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Working Capital Calculation in Detail

1. What Counts as Current Assets?

Current assets include all short-term available assets, typically:

• Bank balances and cash on hand
• Trade receivables
• Inventories (goods, raw materials, supplies)
• Other short-term assets

2. What Counts as Current Liabilities?

These are all debts with a maturity of less than one year, including:

• Trade payables
• Short-term loans or overdraft facilities
• Provisions (e.g., for taxes, bonuses)
• Other short-term liabilities

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Example of Working Capital Calculation

A company has the following balance sheet items:

• Current assets: EUR 300,000
• Current liabilities: EUR 220,000

Calculation & Working Capital Formula:

Working Capital = EUR 300,000 – EUR 220,000 = EUR 80,000

Interpretation: The company has EUR 80,000 as a "buffer" to cover its short-term obligations. This is a sign of healthy liquidity.

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Positive vs. Negative Working Capital

Type

Meaning

Positive (> 0)

Solid liquidity, flexible financing

Equal to 0

Balanced, but vulnerable during bottlenecks

Negative (< 0)

Possible liquidity problems, financial risks

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Practical Tips

• Check regularly: Ideally monthly, to identify trends early
• Keep an eye on inventories and receivables: High stock levels or long payment terms depress working capital
• Automate: Tools like Finban automatically calculate your working capital based on your accounting data or planning

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Conclusion: Why Calculating Working Capital Is So Important

Working capital shows you how liquid and flexible your company is – especially in uncertain times or during rapid growth. A clean calculation is simple but meaningful.

Tip: With structured liquidity planning, you can recognize early when your working capital is getting out of balance – and take timely countermeasures.

Working Capital Calculation Examples in Practice

Company

Current Assets

Current Liabilities

Working Capital

Interpretation

Agency (Service Provider)

EUR 120,000

EUR 45,000

EUR 75,000

Very good buffer. The agency has high receivables from client projects but low ongoing obligations.

E-Commerce Shop

EUR 350,000

EUR 340,000

EUR 10,000

Tightly calculated. Inventory and supplier credits nearly balance out – liquidity is fragile.

Manufacturing Company

EUR 800,000

EUR 920,000

EUR -120,000

Negative working capital. The company finances parts of its current assets through short-term debt – risk during payment bottlenecks.