Working Capital Calculator, with the Cash Conversion Cycle
Enter current assets and liabilities for working capital and the current ratio. Add stock, debtors, creditors, sales and cost of goods sold to see how many days your cash is tied up.
Stock, debtors, cash and bank, short-term advances.
Creditors, statutory dues, short-term loans due within a year.
Result
- Working capital
- ₹40,00,000.00
- Current ratio
- 2.00
- Days of inventory
- 50 days
- Days of receivables
- 55 days
- Days of payables
- 41 days
- Cash conversion cycle
- 63 days
Cash spent on material comes back about 63 days later.
Quick answer
Working capital = Current assets − Current liabilities. Current ratio = Current assets ÷ Current liabilities. The cash conversion cycle = Days of inventory + Days of receivables − Days of payables: the number of days between paying for material and collecting cash from the customer.
| Working capital | Current assets − Current liabilities |
|---|---|
| Current ratio | Current assets ÷ Current liabilities |
| Days of inventory | Inventory ÷ Cost of goods sold × 365 |
| Days of receivables | Debtors ÷ Sales × 365 |
| Days of payables | Creditors ÷ Cost of goods sold × 365 |
Working capital is the money a business needs to run day to day: stock on the shelf, bills customers have not yet paid, cash in the bank, less what it owes suppliers and others in the next twelve months. A factory can be profitable on paper and still short of cash, because profit is booked when an invoice is raised and cash arrives weeks later.
The working capital figure tells you how much is tied up; the cash conversion cycle tells you for how long. Shortening the cycle — less stock, faster collection, sensible supplier credit — releases cash without borrowing it.
The formula
- Working capital
Current assets − Current liabilities- Current ratio
Current assets ÷ Current liabilities- Days of inventory (DIO)
Inventory ÷ Cost of goods sold × 365- Days of receivables (DSO)
Trade receivables ÷ Sales × 365- Days of payables (DPO)
Trade payables ÷ Cost of goods sold × 365- Cash conversion cycle
DIO + DSO − DPO
A worked working capital calculation
A fabrication unit has stock of ₹30 lakh, debtors of ₹45 lakh and cash of ₹5 lakh — current assets of ₹80 lakh. It owes suppliers ₹25 lakh and has ₹15 lakh of other dues within the year — current liabilities of ₹40 lakh. Working capital = 80 − 40 = ₹40 lakh, and the current ratio is 80 ÷ 40 = 2.
With yearly sales of ₹3 crore and cost of goods sold of ₹2.2 crore: days of inventory = 30 ÷ 220 × 365 ≈ 49.8 days; days of receivables = 45 ÷ 300 × 365 ≈ 54.8 days; days of payables = 25 ÷ 220 × 365 ≈ 41.5 days. The cash conversion cycle is 49.8 + 54.8 − 41.5 ≈ 63 days — every rupee spent on material comes back about two months later.
What counts as current assets and current liabilities
Current assets are those expected to turn into cash within twelve months: raw material, work in progress and finished goods; trade receivables; cash and bank balances; short-term advances and deposits. Current liabilities are those due within twelve months: trade payables, statutory dues such as GST and TDS payable, short-term loans, the current portion of term loans, and advances from customers.
A current ratio below 1 means short-term dues exceed short-term assets — a warning sign. Most lenders look for 1.33 or more for working capital limits, and a manufacturer is usually comfortable between about 1.2 and 2. A very high ratio is not automatically good: it often means cash lying idle in slow-moving stock.
How to reduce working capital needs
Inventory is usually the largest and most controllable piece. Setting reorder levels and safety stock per item, clearing dead stock and buying against real demand instead of habit can cut days of inventory sharply. On receivables, invoicing on the day of dispatch and following up on due dates matters more than any discount scheme.
An ERP helps because it shows stock, open orders, receivables and payables from the same data — the numbers this calculator needs are on one screen instead of in four spreadsheets.
Questions people ask.
What is the formula of working capital?
Working capital = Current assets − Current liabilities. Net working capital is the same thing; gross working capital means current assets alone.
What is a good current ratio?
For most manufacturers, between about 1.2 and 2. Below 1, short-term dues exceed short-term assets; well above 2 often means cash tied up in stock or slow debtors.
What is the cash conversion cycle?
The number of days between paying suppliers and collecting from customers: days of inventory + days of receivables − days of payables. Shorter is better.
Can working capital be negative?
Yes, when current liabilities exceed current assets. Some businesses with cash sales and long supplier credit run that way safely, but for most manufacturers it signals a cash crunch.
How do I calculate working capital requirement?
Estimate the cash conversion cycle in days and multiply by the daily cost of operations (yearly cost of goods sold ÷ 365). A 63-day cycle on ₹2.2 crore cost of goods sold needs roughly ₹38 lakh.
Is working capital the same as cash flow?
No. Working capital is a balance at a point in time; cash flow is the movement of cash over a period. A rise in working capital uses cash; a fall releases it.
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