Formula
Working Capital = Current Assets – Current Liabilities
Calculation Example
If a company has $500,000 in current assets and $300,000 in current liabilities, Working Capital = $500,000 – $300,000 = $200,000
Data Source
Balance sheets, financial statements
Tracking Frequency
Monthly, Quarterly, Annually
Optimal Value
Positive working capital ensures liquidity for daily operations.
Minimum Acceptable Value
Negative working capital indicates potential cash flow problems.
Benchmark
Industry-specific; Retail ~1.2-1.5, Manufacturing ~1.5-2.0
Recommended Chart Type
Bar chart (to compare across industries), Line chart (to track changes)
How It Appears in Reports
Displayed in financial reports to assess liquidity position.
Why Is This KPI Important?
Indicates a company’s ability to pay short-term obligations and manage operations.
Typical Problems and Limitations
May not reflect seasonal fluctuations, high working capital could indicate inefficiencies.
Actions for Poor Results
Increase cash inflow, optimize inventory levels, reduce unnecessary short-term debt.
Related KPIs
Cash Flow, Quick Ratio, Current Ratio
Real-Life Examples
A retail company improved working capital by implementing just-in-time inventory management, freeing up cash.
Most Common Mistakes
Focusing only on positive working capital without considering efficiency.
