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Calculate working capital, current ratio, quick ratio, and cash ratio. Analyze business liquidity and short-term financial health with benchmarks.
Working capital is the difference between a company's current assets and current liabilities, measuring short-term liquidity and ability to cover day-to-day operating expenses.
Formula
Current Assets ÷ Current Liabilities
(Cash + Receivables) ÷ Current Liabilities
Cash ÷ Current Liabilities
| Ratio | Excellent | Good | Acceptable |
|---|---|---|---|
| Current Ratio | > 2.0 | 1.5 - 2.0 | 1.0 - 1.5 |
| Quick Ratio | > 1.5 | 1.0 - 1.5 | 0.5 - 1.0 |
| Cash Ratio | > 0.5 | 0.25 - 0.5 | 0.1 - 0.25 |
Formula
Working Capital = Current Assets − Current LiabilitiesCurrent Assets = cash, receivables, inventory, and other assets convertible to cash within 12 months
Current Liabilities = obligations due within 12 months (payables, short-term debt, accrued expenses)
Current Ratio = Current Assets ÷ Current Liabilities (healthy target: 1.5 to 2.0x)
Quick Ratio = (Cash + Receivables) ÷ Current Liabilities: excludes illiquid inventory
Worked Example
$240,000 current assets, $100,000 current liabilities
Did you know? Amazon famously operates with negative working capital: customers pay before Amazon pays suppliers. This 'negative cash conversion cycle' lets it fund growth using suppliers' money rather than its own.
Sources
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