What is working capital?
Working capital is current assets minus current liabilities. It measures the short-term financial cushion a business has to meet obligations due within a year.
It is a liquidity gauge, not a profitability one. Positive working capital means the business can cover what it owes in the near term out of what it owns in the near term, with room to spare.
The formula.
Working capital = current assets minus current liabilities, in dollars. Net working capital is the same calculation; the two terms are used interchangeably. This tool gives the dollar amount, and a second mode gives the current ratio.
Both inputs come from the balance sheet. Current assets include cash, receivables, and inventory; current liabilities include payables and other obligations due within the year.
A worked example.
A business has 200,000 in current assets and 120,000 in current liabilities. Working capital is 200,000 minus 120,000, which is 80,000.
What is the current ratio?
The current ratio is the same comparison expressed as a ratio: current assets divided by current liabilities. On the figures above, that is 200,000 divided by 120,000, or 1.67. A ratio above 1 means current assets cover current liabilities; around 1.5 to 2 is comfortable for most businesses, while below 1 signals that short-term obligations exceed short-term assets. Switch to the current-ratio mode to calculate it directly.
What is good working capital?
Positive working capital is the baseline for a healthy balance sheet, but more is not always better, since excess working capital can mean cash sitting idle in receivables or inventory. Some efficient businesses, including SaaS with upfront billing, run thin or even negative working capital on purpose.
Working capital is one part of the broader cash picture. Reading it next to how long the cash lasts connects the balance-sheet cushion to runway.
How to manage it.
Speed up collections, manage inventory tightly, and time payables sensibly. The goal is enough working capital to operate comfortably without tying up cash that could fund growth.
For software businesses, the bigger cash lever is usually acquisition cost, since paid acquisition drains cash that organic does not. That is part of the case for growth that does not burn cash.