Working Capital Calculator

The quick ratio is the honest one.

The quick ratio is the honest one. The current ratio includes stock, which cannot pay a supplier this week.

Written and maintained by Mohit PatelLast checked August 4, 2026How we build these

Currency

Cash

Inventory at cost

Receivables

Payables

Other current liabilities

Monthly operating costs

Working capital

$144,000

current ratio 2.29

Current assets$256,000

Current liabilities$112,000

Quick ratio excluding stock0.63

Months of costs covered2.3

The current ratio of 2.29 looks comfortable and the quick ratio of 0.63 is the honest one; it excludes stock, which cannot pay a supplier this week. For a stock-heavy business the gap between them is the whole risk.

How the Working Capital Calculator works

The current ratio includes stock, which cannot pay a supplier this week. The quick ratio excludes it, and for a stock-heavy business the gap between the two is the entire liquidity risk.

Also known as: net working capital · how much cash do I need to operate · current assets minus liabilities

What the number is measuring

Working capital is current assets minus current liabilities: what you own that will turn into cash within a year, less what you owe within the same period. Positive means you can meet your obligations from your own short-term resources. Negative means you are relying on new sales or new borrowing to pay bills already incurred.

For a product business the components are predictable. Assets: cash, inventory, receivables, prepayments. Liabilities: trade payables, accrued expenses, tax due, the current portion of any loan, and any customer deposits taken for goods not yet shipped.

The last one catches people. Money taken for a pre-order is not revenue and it is not yours; it is a liability until the goods ship. Businesses funding operations from pre-order deposits are running negative working capital by design and frequently do not know it.

Why inventory makes the ratio lie

The current ratio, current assets over current liabilities, is the standard measure and it treats inventory as a near-cash asset. In a healthy business that is roughly true. In one holding six months of slow stock it is badly untrue, because that inventory will not convert to cash in time to pay anything.

Which is why the quick ratio matters more for product businesses. Strip inventory out and see whether cash plus receivables covers current liabilities. A business with a current ratio of 2.1 and a quick ratio of 0.4 is holding almost all of its short-term value as stock, and stock does not pay wages.

The gap between the two ratios is a useful diagnostic on its own. A wide and widening gap means inventory is growing faster than the business, which is the classic pattern before a cash crisis in a growing retailer.

Growth consumes working capital

This is the mechanism behind most profitable business failures and it is worth stating plainly. Growing sales means buying more inventory before selling it. The cash goes out first, the cash comes back later, and the gap widens in proportion to how fast you are growing.

Work an example. A business turning over £50,000 a month with a two-month inventory cycle holds roughly £60,000 of stock at a 60% cost of goods. Double the turnover and it holds £120,000. That extra £60,000 has to come from somewhere, and it comes before any of the extra profit arrives.

So the faster you grow, the more cash you need, and the profit statement gives no warning at all. A business can be highly profitable, growing quickly, and unable to pay its suppliers, and every one of those things can be true simultaneously.

The levers, in order of how quickly they work

Extending payables is fastest and has a limit. Moving suppliers from 30 to 60 days frees a month of purchases in cash, once. It does not repeat, and pushing beyond what suppliers accept costs you goodwill and eventually costs you supply.

Reducing inventory is slower and repeatable. Every day cut from the holding period releases cash permanently. This is where the largest gains usually sit and where the least attention goes, because reducing stock feels like reducing the business.

Collecting receivables faster is the third, and for direct-to-consumer sellers it barely applies since card payments settle in days. For anyone with wholesale or trade accounts it is often the largest single item, and the fix is usually administrative rather than commercial: invoice promptly, chase systematically, and make the terms explicit.

Negative working capital, which is not always bad

Some businesses run negative working capital deliberately and profitably. Supermarkets take cash at the till and pay suppliers in 60 days, so they are funded by their suppliers. It is a structural advantage of the model rather than a warning sign.

The test is whether the negative position is structural or accidental. Structural means the model reliably produces cash before it consumes it, and the position is stable at any volume. Accidental means you have spent money you needed and are hoping the next few weeks go well.

For most ecommerce sellers it is accidental, because inventory has to be bought before it is sold and payment terms from Asian suppliers are usually the wrong way round: deposit on order, balance before shipping. That is negative working capital in the dangerous direction, and it gets worse as the business grows.

Where to go next

The Working Capital question rarely arrives on its own. These are the ones that usually come with it:

Cash Conversion Cycle Calculator — Days between paying and being paid.
Days Payable Outstanding Calculator — Early payment discounts are worth more than they look.
Operating Cash Flow Calculator — Profitable but broke, quantified.
Etsy Fee Calculator — Every Etsy fee on one sale, itemised.

Not financial advice. Marketplace fees change, and they vary by country, plan and seller status. Every rate here is an editable default, not a quoted price, check the platform's current fee schedule before you price a product against it. This is not tax or business advice.

Frequently asked questions

What is working capital?

Current assets less current liabilities; what would be left if you converted everything short-term to cash and settled everything short-term you owe.

What is a healthy current ratio?

Above 1.5 is a common rule of thumb, though it depends heavily on how quickly stock turns. A retailer with fast turns can operate safely at a lower ratio than one with slow-moving stock.

Why does the quick ratio matter more?

Because stock is not cash and cannot be made into cash on demand without discounting it. In a squeeze, the quick ratio is what you actually have.

How do I improve working capital?

Longer supplier terms, faster collections, and less stock. The last one is usually the largest and the most resisted.

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