Working Capital Calculator

Ideal Current Ratio (Working Capital Ratio): 1.5-2.0 for most businesses. Current Ratio = Current Assets / Current Liabilities. Interpretation: 1.5 = ₹1.5 current assets for every ₹1 current liability (50% buffer). Less than 1.0 = Danger zone (liabilities greater than assets, insolvency risk). Greater than 3.0 = TOO conservative (idle cash, opportunity cost). Industry benchmarks: Manufacturing/Retail = 1.5-2.0 (need inventory buffer). Services/IT = 1.0-1.5 (minimal inventory, faster cash conversion). E-commerce = 1.2-1.8 (fast turnover). Example: Current Assets ₹50L (cash ₹10L, inventory ₹25L, receivables ₹15L), Current Liabilities ₹30L (payables ₹20L, short-term loan ₹10L) → Current Ratio = ₹50L / ₹30L = 1.67 → HEALTHY.

Formula: Working Capital Need = (Inventory Days + Receivable Days − Payable Days) × (Daily Operating Expenses). Example: Revenue ₹1 Cr/year, Operating Expenses ₹60L/year → Daily Expenses = ₹60L / 365 = ₹16,438. Inventory Days = 45 (goods sit 45 days), Receivable Days = 60 (customers pay in 60 days), Payable Days = 30 (you pay suppliers in 30 days). Operating Cycle = 45 + 60 − 30 = 75 days. Working Capital Need = 75 × ₹16,438 = ₹12.3L. Meaning: You need ₹12.3L to fund operations while waiting for customer payments. If you have less than ₹12.3L liquid assets, you'll face cash flow crisis (can't pay salaries, suppliers).

Working Capital: Balance sheet snapshot (Current Assets − Current Liabilities). Shows liquidity position at ONE point in time. Static metric. Cash Flow: Income statement flow (Cash In − Cash Out over a period). Shows actual cash movement (daily, monthly, quarterly). Dynamic metric. Example: Day 1 → Working Capital ₹20L (₹50L assets, ₹30L liabilities). Month 1 → Received ₹10L from customers, paid ₹15L to suppliers → Cash Flow = −₹5L (negative, even though working capital is positive). Issue: Positive working capital does NOT guarantee positive cash flow. You can have ₹50L inventory (asset) but ₹0 cash → Can't pay this month's rent. Solution: Track BOTH—working capital for solvency, cash flow for daily survival.

Strategies: (1) Reduce Inventory Days: JIT (Just-In-Time) inventory, drop slow-moving SKUs, negotiate faster supplier deliveries → Frees ₹10-20L in tied-up capital. (2) Reduce Receivable Days: Credit terms 60 days → 45 days (offer 2% discount for early payment), send weekly payment reminders, auto-debit for repeat customers → Collect ₹5-10L faster. (3) Increase Payable Days: Negotiate 30 days → 45 days with suppliers (without damaging relationship), use credit cards (45-day float) → Retain ₹5L cash longer. (4) Sell Non-Core Assets: Unused machinery, old inventory → Convert to cash. (5) Reduce Operating Expenses: Cut discretionary spending (marketing, travel) → Lower daily cash burn. Example: Inventory 60→45 days + Receivables 60→45 days + Payables 30→45 days = 60 days operating cycle improvement → ₹15-25L working capital freed.

NO, negative working capital can be GOOD for specific business models. Negative Working Capital = Current Liabilities greater than Current Assets. Why it's good: Amazon, Flipkart, McDonald's all run on negative working capital (collect from customers immediately, pay suppliers after 60-90 days) → Use supplier money to fund operations (interest-free loan!). Example: Retail business collects ₹1 Cr in January (cash sales), pays suppliers in March → Negative ₹1 Cr working capital but ₹1 Cr cash to invest for 60 days (earn ₹1-2L interest). When it's BAD: If negative working capital due to unpaid debts, not business model efficiency. Burning cash, delaying payments out of desperation = insolvency. Verdict: Negative working capital is GREAT if by design (fast inventory turnover, delayed payables). TERRIBLE if accidental (can't pay bills on time).

Cash Conversion Cycle (CCC) = Days to convert inventory + receivables into cash. Formula: CCC = Inventory Days + Receivable Days − Payable Days. Example: Inventory 60 days, Receivables 45 days, Payables 30 days → CCC = 60 + 45 − 30 = 75 days. Meaning: Takes 75 days to convert ₹1 spent on inventory into ₹1 cash received from customer. During these 75 days, you need working capital to survive. Lower CCC = Better: Amazon CCC = −20 days (collects from customers before paying suppliers, ideal). Apple CCC = 60 days (fast inventory turnover). Traditional retail CCC = 90-120 days (slow turnover). How to reduce CCC: (1) Sell inventory faster (better marketing, discounts), (2) Collect receivables faster (stricter credit terms), (3) Delay payables (negotiate with suppliers). Every 10-day CCC reduction = ₹5-10L working capital saved.

YES, if current ratio less than 1.2 and you have growth opportunity. Working capital loan prevents: (1) Stockouts (inventory shortage → lost sales), (2) Delayed salaries (employee attrition), (3) Supplier payment delays (damage relationships, future credit denied). Example: Current Assets ₹40L, Current Liabilities ₹35L → Current Ratio 1.14 (risky, minimal buffer). Land ₹50L order but need ₹20L to buy raw materials + 60-day production cycle. Without loan → Reject order (opportunity cost ₹5L profit). With ₹20L working capital loan @ 14% for 90 days → Fund order, deliver, collect ₹50L, repay ₹20.7L (₹20L + ₹70k interest), profit ₹5L − ₹70k = ₹4.3L. ROI: 20%+ on ₹20L. However, AVOID working capital loan if: (1) Business fundamentally unprofitable (loan won't fix), (2) Current ratio already greater than 2.0 (excess liquidity, poor capital allocation), (3) Can improve CCC instead (cheaper than 14% loan interest).

Working Capital Loan: Short-term (3-12 months), funds daily operations (inventory, salaries, payables). Amount = 20-25% of revenue or based on CCC. Interest 12-16%. Repayment: Monthly or upon receivable collection. Example: ₹20L for 6 months @ 14% → Repay ₹21.4L when customers pay. Term Loan: Long-term (3-10 years), funds fixed assets (machinery, property, expansion). Amount = 70-80% of asset cost. Interest 10-14%. Repayment: EMI over loan tenure. Example: ₹50L for machinery @ 12% for 5 years → ₹1.11L monthly EMI. When to use which: Need cash for THIS month's salaries/inventory → Working capital loan. Buying equipment that generates revenue over 5 years → Term loan. Mixing these is expensive—never fund machinery with working capital loan (high interest for long tenure) or inventory with term loan (unused funds for 60 days, wasted interest).