Working capital is the financial oxygen of any business. It tells you whether the company has enough liquid resources to meet its obligations over the next twelve months — and, more precisely, how efficiently it cycles cash through its operating process. This calculator computes net working capital, three key liquidity ratios, a cash conversion cycle breakdown (DSO, DIO, DPO), and a working capital turnover figure, all instantly and entirely in your browser.
How it works
Net working capital is the simplest measure:
WC = Current Assets - Current Liabilities
Current assets are resources expected to convert to cash within twelve months: cash itself, short-term investments, trade receivables (debtors), and inventory. Current liabilities are obligations due within twelve months: trade payables (creditors), short-term debt, accrued wages, and similar items.
Three liquidity ratios give a more nuanced view:
- Current Ratio = Current Assets / Current Liabilities. The broadest measure of short-term solvency.
- Quick Ratio = (Cash + Short-term Investments + Receivables) / Current Liabilities. Strips out inventory because stock can take time to sell.
- Cash Ratio = Cash / Current Liabilities. The most conservative test — can you cover debts with cash on hand alone?
The cash conversion cycle (CCC) measures how many days cash is locked up in operations:
- DSO = (Receivables / Net Sales) x 365 — average days to collect from customers.
- DIO = (Inventory / COGS) x 365 — average days inventory sits before being sold.
- DPO = (Payables / COGS) x 365 — average days taken to pay suppliers.
- CCC = DSO + DIO - DPO
A shorter CCC (or a negative one) means cash cycles back faster. Optimising these three levers independently — collect faster, hold less stock, pay suppliers later — is the core of working capital management.
Finally, working capital turnover = Net Sales / Working Capital shows how much revenue each pound of working capital generates. A rising ratio signals improving efficiency; a very high ratio can indicate the business is stretched thin.
Worked example
Consider a mid-size UK retail company with the following figures:
| Item | Amount |
|---|---|
| Cash | £150,000 |
| Short-term investments | £50,000 |
| Receivables | £280,000 |
| Inventory | £320,000 |
| Other current assets | £40,000 |
| Total Current Assets | £840,000 |
| Accounts payable | £190,000 |
| Short-term debt | £80,000 |
| Accrued liabilities | £60,000 |
| Other current liabilities | £30,000 |
| Total Current Liabilities | £360,000 |
Net Working Capital = £840,000 - £360,000 = £480,000
Current Ratio = 840,000 / 360,000 = 2.33 — strong.
Quick Ratio = (150,000 + 50,000 + 280,000) / 360,000 = 1.33 — healthy.
With annual net sales of £2,400,000, COGS of £1,680,000, and the figures above:
- DSO = (280,000 / 2,400,000) x 365 = 42.6 days
- DIO = (320,000 / 1,680,000) x 365 = 69.5 days
- DPO = (190,000 / 1,680,000) x 365 = 41.3 days
- CCC = 42.6 + 69.5 - 41.3 = 70.8 days
The CCC of about 71 days means cash is tied up in the cycle for roughly ten weeks. Cutting DIO by 20 days through faster stock rotation would save roughly £92,000 of locked-up capital at current sales rates. Use the Load example button to pre-fill exactly these figures and explore scenarios instantly.