Working Capital Calculator

Working capital formulas, with Excel and Google Sheets versions

Each result above comes from one of these formulas. The examples use the calculator's default numbers, which describe an illustrative B2B SaaS company that bills most contracts annually upfront.

B2 is cash and short-term investments, B3 accounts receivable, B4 inventory, prepaid and other current assets, B5 accounts payable, B6 accrued expenses, B7 current deferred revenue and B8 short-term debt and other current liabilities. C9 and D9 hold operating working capital at the end and the start of the period. The "current" in each line follows the accounting rule summarized from ASC Topic 210: assets expected to be realized, and liabilities expected to be settled, "within a year or normal operating cycle, whichever is longer".

How to calculate working capital, step by step

1. Take the current section of the balance sheet. Use one date, usually a month-end or quarter-end.
2. Add up current assets. Cash, short-term investments, receivables, inventory, prepaid expenses and the current part of capitalized contract costs, such as sales commissions.
3. Add up current liabilities. Accounts payable, accrued expenses (payroll, commissions, taxes), current deferred revenue, the current part of debt and leases, and anything else due within a year.
4. Subtract. Current assets minus current liabilities is working capital. Divide them for the ratio.
5. Split operating from financing. Take cash out of assets and debt out of liabilities to see operating working capital, the part your business model creates.
6. Check deferred revenue. If it is a large share of current liabilities, show working capital with and without it, so nobody reads a prepaid customer base as a liquidity problem.

Why SaaS working capital is often negative, with a public example

When a customer pays a $120,000 annual contract upfront, cash rises by $120,000 and so does deferred revenue, a current liability. Each month, $10,000 moves from deferred revenue to revenue. The company does not pay that liability back in cash. It settles it by delivering the service, at the cost of hosting and support, which in software is far below the price.

Salesforce shows the pattern at scale. Its fiscal 2019 10-K reported "(Negative) working capital" of $572 million at January 31, 2019. The balance sheet that day showed $10,683 million of current assets against $11,255 million of current liabilities, and $8,564 million of those liabilities, 76%, was unearned revenue (Salesforce, Form 10-K, fiscal 2019; balance sheet). Without unearned revenue, current liabilities were $2,691 million and working capital was a positive $7,992 million.

The same filing listed claims against working capital as "accounts payable, accrued expenses, unearned revenue, and other current liabilities." A ratio of 0.95 would worry a lender looking at a distributor. For a subscription company it mostly says customers paid in advance. The calculator shows both views for your own numbers.

Working capital vs net working capital vs operating working capital

Change in working capital and the cash flow statement

The cash flow statement starts from net income and adjusts for changes in operating working capital. A rise in receivables means revenue was booked but not collected, so it subtracts from cash. A rise in deferred revenue means cash was collected before revenue was earned, so it adds to cash. Payables and accruals add when they grow, because you kept the cash for now.

In the second tab's default example, receivables rise $300,000 and prepaid costs $100,000, which uses $400,000. Payables rise $50,000, accruals $100,000 and deferred revenue $1,200,000, which frees $1,350,000. Operating working capital falls by $950,000, so operating cash flow is $950,000 higher than the income statement alone suggests. Most of it comes from customers paying annual invoices before the service is delivered. ORM's guide to the three statement model shows how these lines tie the balance sheet to the cash flow statement.

Working capital in days: DSO, DPO and the cash conversion cycle

Dollar balances grow with the company. Days do not, so finance teams often track working capital in days of sales or costs. Each line has its own calculator or entry on ORM:

• Receivables: days sales outstanding (receivables in days of billings), or the accounts receivable turnover ratio (how many times a year receivables turn into cash).
• Payables: days payable outstanding, with a mini calculator and the choice between cost of goods sold and purchases.
• All together: the cash conversion cycle, DIO + DSO - DPO, which for SaaS is DSO minus DPO.

Cutting DSO by one day frees one day of billings in cash, once. At $40,000 of billings a day, five days is $200,000.

What is a good working capital ratio?

For a typical business, PNC describes a good working capital ratio as "over 1.0 and up to 2.0". Below 1.0, current liabilities exceed current assets. Far above 2.0, cash or receivables may be sitting idle. Those rules of thumb assume liabilities are paid in cash.

For a SaaS company, read the ratio twice: as reported, and without deferred revenue. A ratio of 0.95 as reported and close to 4 without deferred revenue, as in the Salesforce example, describes a company that customers prepay. A ratio below 1.0 on both views is the one to worry about. Large companies also carry more working capital than they need: The Hackett Group's 2025 Working Capital Survey of the top 1,000 US public nonfinancial companies estimated $1.7 trillion trapped in excess working capital, $600 billion of it in receivables.

What Pete Furseth sees in SaaS working capital

• Quarter-end balances are not average balances. Pete sees the fourth quarter as typically the largest across ORM's customers, followed by the second, third and first, and the third month of each quarter as always the largest. Receivables and deferred revenue both peak at quarter end. Compare each quarter with the same quarter last year.
• Payment terms are a sales decision too. In his guide to billings vs cash collections, Pete notes that reps near quarter end trade longer terms for a signature. Terms move receivables, and so working capital, for a full year.
• One number, one definition. "If you show one number on one slide, that number better show up on the next, or there should be a clear explanation for why it changed." Label working capital as reported or operating, with or without deferred revenue.

How to improve working capital in a SaaS company

• Bill annually upfront where buyers accept it. It raises deferred revenue and cash at the same time.
• Invoice on the contract start date and collect on terms. The DSO calculator shows how much late payment costs you.
• Pay suppliers on their terms, not earlier. Unless an early-payment discount beats your cost of cash.
• Forecast it. The cash flow forecast template turns billings, terms and payroll into monthly cash, and the 13-week cash flow template does the same week by week.

Common working capital mistakes

• Reading negative working capital as distress in a subscription business. Check the deferred revenue share first.
• Mixing definitions. Working capital with cash and debt, and operating working capital without them, can differ by millions.
• Leaving the current part of debt or leases out of liabilities. It makes the ratio look better than it is.
• Comparing a quarter-end balance with a mid-quarter one. Seasonality moves receivables and deferred revenue.
• Getting the sign wrong on the cash flow statement. An increase in working capital uses cash.

This calculator is for planning and analysis. It is not accounting, tax or legal advice; your auditor decides how each balance is classified.

ORM's take on working capital and the bookings forecast

In SaaS, the largest working capital lines, receivables and deferred revenue, both start with a booking. How much is billed, when, and on what terms decides most of the balance sheet's current section. A working capital plan built on a bookings forecast that is wrong will be wrong by the same amount.

That is what ORM forecasts. We build bookings and ARR forecasts from your own CRM data, with a low case, an on-target case and an upper bound, and with the week-by-week seasonality of your quarter built in. ORM targets 95% accuracy on the forecasts it builds.

Common questions

What is the formula for working capital?

Working capital is current assets minus current liabilities. Current assets are cash, receivables, inventory, prepaid costs and other assets you expect to turn into cash within a year. Current liabilities are payables, accrued expenses, deferred revenue, the current part of debt and other amounts due within a year. With $10,600,000 of current assets and $7,000,000 of current liabilities, working capital is $3,600,000.

What is the formula for net working capital?

Net working capital usually means the same thing: current assets minus current liabilities. Some analysts use a narrower operating version that leaves out cash and short-term debt, because those are financing items. That version is (current assets - cash) - (current liabilities - short-term debt). Say which one you use, because a SaaS company can be positive on the first and negative on the second.

What is a good working capital ratio?

The working capital ratio, also called the current ratio, is current assets divided by current liabilities. PNC describes a good ratio as typically over 1.0 and up to 2.0. Below 1.0 means current liabilities exceed current assets. For a SaaS company with large deferred revenue, a ratio under 1.0 can be normal, because much of that liability is settled by delivering service, not by paying cash.

What are the four main components of working capital?

The four usually named are cash, accounts receivable and inventory on the asset side, and accounts payable on the liability side. Most balance sheets carry more: prepaid expenses, accrued expenses, the current part of debt and, in subscription businesses, deferred revenue. For a SaaS company, receivables and deferred revenue are often the two largest operating items, and inventory is close to zero.

Can working capital be negative?

Yes. Working capital is negative when current liabilities are larger than current assets. In a struggling business that can signal a cash shortfall. In a subscription business it often means customers paid upfront: Salesforce reported negative working capital of $572 million at January 31, 2019, when unearned revenue made up $8,564 million of its $11,255 million of current liabilities.

How do you calculate the change in working capital?

Subtract working capital at the start of the period from working capital at the end, usually leaving out cash and debt. An increase uses cash and a decrease frees it, so on the cash flow statement the sign flips. If receivables rise $300,000 and deferred revenue rises $1,200,000, operating working capital falls $900,000 from those two lines, and operating cash flow is $900,000 higher than net income alone suggests.