Question 1

What is working capital?

Accepted Answer

Working capital is the difference between a company's current assets (cash, accounts receivable, inventory) and current liabilities (accounts payable, short-term loans, accrued expenses). Positive working capital means the business can cover its short-term obligations; negative working capital signals potential liquidity risk.

Question 2

What is a good current ratio?

Accepted Answer

A healthy current ratio is generally between 1.5 and 3.0. A ratio below 1.0 means current liabilities exceed current assets, signaling potential cash flow problems. A ratio above 3.0 may indicate inefficient use of assets.

Question 3

What is the difference between current ratio and quick ratio?

Accepted Answer

The current ratio includes all current assets (including inventory), while the quick ratio excludes inventory and other less-liquid assets. The quick ratio gives a more conservative view of liquidity. A quick ratio above 1.0 is generally considered healthy.

Question 4

How much working capital does my business need?

Accepted Answer

Most businesses aim for 30–90 days of working capital coverage. The right amount depends on your industry, payment terms, and growth rate. Retail businesses typically need less than manufacturers, which carry large inventory balances.

Question 5

How can I improve my working capital?

Accepted Answer

Common strategies include collecting receivables faster (shorter payment terms), extending payable terms with suppliers, reducing inventory levels, securing a revolving credit facility, and improving profit margins to generate more internal cash flow.

Working Capital Calculator

📈 Balance Sheet Inputs

📊 Liquidity Summary

Assets vs Liabilities

Ratio Comparison Chart

12-Month Working Capital Projection

📈 Balance Sheet Inputs

📊 Liquidity Summary

Assets vs Liabilities

Ratio Comparison Chart

12-Month Working Capital Projection

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