Financial Statement Analysis

- Ratio Analysis of Financial Statements (Formula, Types, Excel)
- Ratio Analysis
- Liquidity Ratios
- Turnover Ratios
- Profitability Ratios
- Profit Margin
- Gross Profit Margin Formula
- Operating Profit Margin Formula
- Net Profit Margin Formula
- EBIDTA Margin
- Earnings Per Share
- Basic EPS
- Diluted EPS
- Basic EPS vs Diluted EPS
- Return on Equity (ROE)
- Return on Capital Employed (ROCE)
- Return on Invested Capital (ROIC)
- Return on Total Assets (ROA)
- Return on Average Capital Employed
- Capital employed Employed
- Return on Average Assets (ROAA)
- Return on Average Equity (ROAE)
- Return on Assets Formula
- Return on Equity Formula
- DuPont Formula
- Net Interest Margin Formula
- Earnings Per Share Formula
- Diluted EPS Formula
- Contribution Margin Formula
- Revenue Per Employee Ratio
- Operating Leverage
- EBIT vs EBITDA
- EBITDAR
- Capital Gains Yield
- Tax Equivalent Yield
- LTM Revenue
- Operating Expense Ratio Formula
- Overhead Ratio Formula
- Capacity Utilization Rate Formula
- Total Expense Ratio Formula

- Efficiency Ratios
- Dividend Ratios
- Debt Ratios
- Debt to Equity Ratio
- Debt Coverage Ratio
- Debt Ratio
- Debt to Income Ratio Formula (DTI)
- Capital Gearing Ratio
- Capitalization Ratio
- Interest Coverage Ratio
- Times Interest Earned Ratio
- Debt Service Coverage Ratio (DSCR)
- Financial Leverage Ratio
- Net Debt Formula
- Leverage Ratios
- Operating Leverage vs Financial Leverage
- Current Yield
- Debt Yield Ratio

**Working Capital Formula**(Table of Contents)

## Working Capital Formula

Working capital formula (WC) is one of the most common concepts every business owner should understand. Even every investor should know about it to find out how liquid a firm is at any given moment of time.

WC is also the short term capital the firm needs to run the operation. If the WC is not good enough, then the operation of the firm will suffer.

Let’s have a look at how you can find out the Working Capital formula of a company.

**Recommended Courses**

### Working Capital Example

t’s take a practical Working Capital Example to illustrate the working capital formula.

**Tithing Inc. has the following information for you –**

**Current Assets – **

**Accounts Receivables – $40,000****Cash – $15,000****Inventories – $34,000****Marketable Securities – $45,000****Prepaid Expenses – $5000**

**Current Liabilities –**

**Accounts Payables – $35,000****Notes Payables – $15,000****Accrued Expenses – $12,000****Short term debt – $34,000**

**Find out the WC of Tithing Inc.**

From the of working capital example, we will first add up the current assets and the current liabilities and then use to calculate the working capital formula.

- The total current assets would be = ($40,000 + $15,000 + $34,000 + $45,000 + $5000) = $139,000.
- The total current liabilities would be = ($35,000 + $15,000 + $12,000 + $34,000) = $96,000.

Using the formula we get –

- WC = Current Assets – Current Liabilities
- Or, WC = $139,000 – $96,000 = $43,000.

It means that the WC of Tithing Inc. is positive and quite healthy.

### Colgate Working Capital Calculation

Below is the Snapshot of Colgate’s 2016 and 2015 balance sheet.

Let us calculate the WC for Colgate

WC (2016)

- Current Assets (2016) = 4,338
- Current Liabilities (2016) = 3,305
- WC (2016) = 4,338 – 3,305 = $ 1,033 million

WC (2015)

- Current Assets (2015) = 4,384
- Current Liabilities (2015) = 3,534
- WC (2015) = 4,384 – 3,534 = $850 million

### Explanation of Working Capital Formula

Calculating the Working Capital formula is quite easy.

All you need to do is to look at the balance sheet of the company.

And then look at the current assets and current liabilities.

- Current assets are the assets that will offer benefits to the company for the next one year or less. These assets are just opposites of non-current assets because these assets benefit the company for a very short period of time. We also call them short-term assets. Cash, inventories, accounts receivables, marketable securities, prepaid expenses etc. are the examples of current assets.
- Current liabilities, on the other hand, are liabilities that are short-term liabilities of the company. That means the company can expect to pay off these short-term liabilities within a year. These are completely opposite of long-term liabilities. Accounts payables, notes payables, accrued expenses, a part of the long-term debt which need to be paid currently etc. are examples of current liabilities.

When we total the current assets that the company has on their balance sheet and then deduct the total current liabilities, we will get the WC.

### Use of Working Capital Formula

WC depicts so many things about a company.

- If a company has a positive WC (meaning the current assets are more than the current liabilities of the company), then the company is in a good position in terms of efficiency, liquidity, and the overall financial health.
- On the other hand, if the company has a negative working capital (meaning the current assets are less than the current liabilities of the company), the company is suffering from inefficiency and illiquidity.

It’s also important for a company to see how long the inventories sit with the company. If the inventories aren’t moving out for long, the capital will remain tied up.

**Working Capital Calculator**

You can use the following Working Capital Calculator.

Current Assets | |

Current Liabilities | |

Working Capital Formula = | |

Working Capital Formula = | Current Assets – Current Liabilities |

0 – 0 = | 0 |

**Working Capital Formula in Excel (with excel template)**

Let us now do the same working capital example in excel. This is very simple. You need to provide the two inputs of Current Assets and Current Liabilities.

You can easily calculate working capital in the template provided.

You can download this working capital template here – Working Capital Excel Template

### Working Capital Formula Video

### Recommended Articles

This has been a guide to Working Capital formula, its uses along with Working Capital Example. Here we also provide you with Working Capital Calculator with downloadable excel template.

subrata chakraborty says

excellent

Dheeraj Vaidya says

thanks Subrata!