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**Your working capital is used to pay short-term obligations such as your accounts payable and buying inventory. If your working capital dips too low, you risk running out of cash.** Even very profitable businesses can run into trouble if they lose the ability to meet their short-term obligations.

This Working Capital Calculator assists you in determining working capital needs for the next year. To further enhance your working capital analysis, use this Break Even Point/Analysis to determine the number of units to be break even.

## Working Capital Calculator

## Working Capital Calculation – Definitions

**Working Capital is a measure of a business’ efficiency as well as its short-term financial health. A positive working capital means that the business is able to pay off its short-term liabilities. Negative working capital means that a business currently is unable to meet its short-term liabilities with its current assets.**

**Annual growth – **The percent of growth you expect over the next year.

**Total current assets – **This is any cash or asset that can be quickly turned into cash. This includes prepaid expenses, accounts receivable, most securities and your inventory.

**Total current liabilities – **This is a liability in the immediate future. This includes wages, taxes, and accounts payable.

**Current ratio – **Current Assets divided by current liabilities. Your current ratio helps you determine if you have enough working capital to meet your short-term financial obligations. A general rule of thumb is to have a current ratio of 2.0. Although this will vary by business and industry, a number above two may indicate a poor use of capital. A current ratio under two may indicate an inability to pay current financial obligations with a measure of safety.

**Working capital – **Working capital is used by lenders to help gauge the ability for a company to weather difficult financial periods. Working capital is calculated by subtracting current liabilities from current assets. Due to differences in businesses and the fact that working capital is not a ratio but an absolute amount, it is difficult to predict what the ideal amount of working capital would be for your business. **To calculate working capital requirements this calculator uses the “Current Ratio” to determine a target amount of working capital. See the “Current Ratio” definition for more information.**

**Having a clear understanding of working capital needs is critical to the survival of a business**. Equally as critical is a cash flow analysis. Use this **Cash Flow Calculator** to determine your business cash flow requirements.