Fill in what you own and what you owe in the short term, and the days in your cash cycle. You will see whether your business has a cushion to operate and how much you need to finance.
The preloaded values are an example: replace them with your own figures.
Current assetsWorking capital
With these figures, your business has $15.000,00 in current assets and $9.500,00 in short-term debts: working capital of $5.500,00. Given your cash cycle of 45 days, you would need to finance about $12.000,00 of operations.
What you own vs. what you owe (short term)
Cash conversion cycle
| Item | Days |
|---|---|
| Inventory days | 45 |
| + Collection days | 30 |
| − Days payable to suppliers | 30 |
| = Cash cycle | 45 |
Results are for reference only and are not actual figures. Values depend on the country, the financial institution, taxes and current laws, and must be validated with an authorized financial institution. Banco.guru is an educational guide to what can be achieved; it does not offer products or personalized financial advice.
Tips for using this result
- Collecting sooner and paying later (without hurting relationships) frees up cash.
- Idle inventory is idle money: check your turnover.
- Always keep business and personal finances separate.
- If you need to finance the cycle, compare the costs of credit lines and factoring.
What is working capital?
It is the money your business needs to operate day to day: buying inventory, paying salaries and suppliers while you wait to collect from your customers. In accounting terms it is calculated as current assets − current liabilities. If it is positive, you have more short-term resources than short-term obligations.
Indicators this tool calculates
- Net working capital: current assets − current liabilities.
- Current ratio: current assets ÷ current liabilities. Above 1 indicates you cover your short-term debts.
- Quick ratio: (current assets − inventory) ÷ current liabilities. It measures liquidity without relying on selling inventory.
- Cash conversion cycle: inventory days + collection days − payment days.
- Operating financing need: cash cycle × daily operating cost.
Why can a profitable business run out of cash?
Because profits are not cash. If you sell on credit, take time to collect and pay your suppliers quickly, you need to finance that gap. A long cash cycle with growing sales can consume all your cash even if the business is making money.
How to improve your working capital
- Shorten collection days: early-payment incentives, immediate invoicing, follow-up.
- Reduce slow-moving inventory.
- Negotiate terms with suppliers.
- Keep a liquidity reserve.
- If you need financing, compare options such as a line of credit or the factoring by their total cost.
Frequently asked questions
How is working capital calculated?
By subtracting current liabilities (short-term debts) from current assets (cash, accounts receivable, inventory).
What is a good current ratio?
It depends on the industry. As a general reference, values above 1 indicate the ability to cover short-term debts; very high values may indicate idle resources.
What is the cash conversion cycle?
The days that pass from when you pay for your inventory until you collect on the sale. It is calculated as inventory days + collection days − payment days.
Is negative working capital always bad?
Not always: some businesses collect in cash and pay on credit. But for most small businesses it is a liquidity warning sign.
Keep learning at banco.guru
- Working capital: what it is and how to calculate it simply
- Working capital: how do you estimate it for a small business?
- Business cash cycle: what it is and why it matters
- Business cash flow: what it is and how to read it simply
- Inventory turnover: what is it and how do you read it?
- Accounts receivable: what they are and why they matter to your business
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