Working Capital Needs

Working capital essential to running your business. These terms assist you in determining your working capital needs for the next year.

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.

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