How Do you Calculate Working Capital?
Working capital and WC ratio are balance sheet calculations. Before you start doing the math, choose a period of time for calculating your business’s working capital. While this is one financial year in most cases, you can also calculate on a monthly or quarterly basis.
Firstly, find the section which lists your assets on the balance sheet. Not all assets are considered current assets. That includes cash and other liquid assets, which you can convert to cash in a year’s time. Do not consider your fixed asset values when you calculate working capital. Add all the balances of each current asset, and get a total.
Secondly, find the section which lists your liabilities. Not all liabilities are considered current liabilities; the latter are comprise only the outstanding amounts you have to pay to your creditors in 12 months. Add up all the CL account balances, and get a total.
Now comes the part where you apply the formula. Take the current assets’ and liabilities’ totals, and find the difference between the two. The result will be your working capital for that particular period of time, which you will need for further calculations.