Working Capital Formula
Working capital is one of the most important metrics when it comes to a company's short-term liquidity. It shows you whether your company is able to cover ongoing invoices and obligations from existing current assets.
Marcus Smolarek
Gründer von finban
Zuletzt aktualisiert
Working Capital is one of the most important metrics when it comes to a company's short-term liquidity. It shows you whether your company is able to cover ongoing invoices and obligations from existing current assets.
The Working Capital Formula
The working capital calculation is simple:
Working Capital = Current Assets – Current Liabilities
What Does It Include?
Current Assets:
- Bank balances and cash on hand
- Trade receivables
- Inventories (e.g., warehouse stock)
- Other short-term assets
Current Liabilities:
- Trade payables
- Short-term loans and borrowings
- Provisions
- Other debts with a maturity of less than 1 year
Example for Illustration
A company has:
- Current assets: EUR 250,000
- Current liabilities: EUR 180,000
Formula applied:
EUR 250,000 – EUR 180,000 = EUR 70,000 Working Capital
The company is liquid and can easily meet its short-term obligations.
Why Is This Important?
Positive working capital means financial stability. A negative value, on the other hand, can indicate bottlenecks or a business model that is too heavily financed by debt.
Conclusion
The working capital formula is simple but meaningful. It helps you realistically assess the financial agility of your company – a must for founders, CFOs, and SMEs.
Tip: With finban, you can automatically calculate your working capital and analyze it over time – based on your real accounting data or planned values.