Working capital measures your business's ability to fund day-to-day operations: buying goods, paying salaries and waiting to collect from sales.
How is it calculated?
Working capital = Current assets − Current liabilities
Current assets include cash, inventory and receivables. Current liabilities include amounts owed to suppliers, salaries and accrued expenses.
Example
A business has SAR 80,000 in cash, SAR 120,000 in inventory and SAR 100,000 in receivables, and owes suppliers and others SAR 180,000. Its working capital is SAR 120,000.
How do you improve it?
- Shorten the time it takes to collect from customers.
- Negotiate longer payment terms with suppliers.
- Reduce slow-moving inventory.
- Plan purchases of equipment and major assets in advance so they don't drain operating cash.
Try it yourself: Financial ratios calculatorOpen the tool
TopicsWorking capitalReceivablesInventory
