What is Working capital?
The cash tied up in running the business day to day — current assets minus current liabilities.
Working capital is the cash tied up in operating the business day to day: what's owed to you and prepaid by you (receivables, inventory, prepayments) minus what you owe short-term (payables, accruals). It's the gap between "profitable" and "can pay payroll on the 28th" — a company can be profitable on paper and starve on cash because the profit is sitting in unpaid invoices.
The formula is current assets minus current liabilities. Positive working capital funds operations; negative working capital can be a superpower (customers pay before you pay suppliers — grocery stores, annual-prepaid SaaS) or a countdown, depending on who pays first and by how much. The current ratio (assets ÷ liabilities) is the same idea as a multiple.
What FP&A actually manages is the change: growth usually consumes working capital (more sales → more receivables and inventory before the cash arrives), which is why a growing profitable company can still burn cash. Every forecast that ignores working-capital movement has a hidden lie in its cash line — it's the bridge between the P&L forecast and the 13-week cash view.
Formula
Working capital = current assets − current liabilities
Current = convertible/owed within 12 months. Current ratio = current assets ÷ current liabilities (the same idea as a multiple; 1.0 = break-even).
The Sumwise question
Calculate working capital from the balance sheet export: total current assets, total current liabilities, working capital, and the current ratio.
Runs on working_capital_sample.csv. An inline balance-sheet snapshot (downloadable below) sized to match the September GL sample — about two months of receivables for a $540k/month business.
Worked example — working_capital_sample.csv
| Current assets (AR $956,000 + prepaid $48,000) | $1,004,000 |
| Current liabilities (AP $389,000 + accrued $126,000) | $515,000 |
| Working capital | $489,000 |
| Current ratio | 1.95 |
Working capital is $489,000 (current ratio 1.95) — nearly half a million of cash is financing the gap between invoicing and paying. Collect 5 days faster and some of that comes home.
working_capital_sample.csv — drop it into the demo's Your-own-CSV tab (or Excel) and re-run the example.
Common questions
Is negative working capital bad?
Not automatically. If customers pay you before you pay suppliers (annual-prepaid SaaS, retail), negative working capital means the business is funded by its customers — capital that grows with the business. It's bad when it means overdue payables and a shrinking balance; the direction and the business model decide.
What's the working capital cycle?
The days between paying for inputs and collecting from customers: DIO + DSO − DPO. Shorter means less cash tied up. It's the operational version of the working-capital number — the levers (collect faster, hold less inventory, negotiate terms) all live here.
How does working capital relate to runway?
Runway divides the cash balance by burn; working capital explains part of the burn. A month where receivables jump is a cash out with no expense — it won't show in EBITDA but it shortens runway all the same. The 13-week cash forecast is where the two finally meet.
Compute working capital on your own export, every month
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Related terms
Burn rate
How much cash the company consumes per month — net of what's coming back in.
Runway
Months of cash left at the current burn — cash balance ÷ average monthly net burn.
Rolling forecast
Actuals for closed months plus a re-cut forecast for the rest of the year — same horizon, refreshed every cycle.