What this tool helps you decide
Assess the short-term resources and obligations on a balance sheet, then optionally examine how long operating cash is tied up. The two views support different decisions: paying the next bill and improving the operating cycle.
How to use it
- Use current assets and current liabilities from the same reporting date. Keep trade payables out of the separate short-term-debt entry so they are not counted twice.
- Receivables and inventory should reflect usable amounts. Overdue customer balances, obsolete stock and restricted cash may make the headline asset total less useful for immediate payment planning.
- The cash-cycle section is optional. It needs annual COGS and credit sales plus average inventory, receivables and payables from a consistent period. Closing balances alone can be misleading during seasonal peaks.
- If only a monthly flow is available, establish an appropriate annual measure before entering it. Do not mix one month of sales with 365-day formulas and annual average balances.
Understanding the results
Positive working capital means current assets exceed current liabilities. It does not mean the entire difference is spendable cash. The assets may be held in stock or awaiting collection.
A current ratio compares assets with liabilities; it does not describe when payments fall due. With no liabilities the ratio is undefined, while the asset and working-capital figures remain meaningful.
The cash conversion cycle adds inventory days and collection days, then subtracts supplier-payment days. It uses COGS as a proxy for credit purchases. A negative cycle can reflect customers paying before suppliers need payment.
FOLLOW THE NUMBERS
A worked example
This fixed example is separate from your live inputs. It uses the editable defaults with the optional cash cycle enabled.
- ₹1,00,000 cash + ₹2,00,000 receivables + ₹1,50,000 inventory = ₹4,50,000 current assets. Liabilities total ₹2,00,000.
- Net working capital is ₹2,50,000; the current ratio is ₹4,50,000 / ₹2,00,000 = 2.25×.
- With the example annual flows and averages, inventory days are 45.625, receivable days 30.4167 and payable days 36.5. The cycle is 39.5417 days.
| Measure | Example value |
|---|---|
| Net working capital | ₹2,50,000.00 |
| Total current assets | ₹4,50,000.00 |
| Total current liabilities | ₹2,00,000.00 |
| Current ratio | 2.25× |
| Inventory days | 45.63 days |
| Receivable days | 30.42 days |
| Payable days | 36.5 days |
| Cash conversion cycle | 39.54 days |
Common business scenarios
A seasonal retailer buying festival stock
A large closing inventory balance may be deliberate. Compare expected selling dates with supplier due dates, and use representative averages for the cycle.
A professional firm waiting on invoices
Inventory may be zero while receivable days dominate. Review ageing and collection terms rather than assuming a high current ratio ensures ready cash.
A cash-first shop with supplier credit
Negative working capital may coexist with reliable daily collections. Stress-test lower sales and tighter supplier terms before treating the model as comfortably funded.
Assumptions and limitations
There is no universal ideal ratio across industries. Business model, seasonality, asset quality and credit access all matter.
A static balance sheet is not a cash-flow forecast. Add a dated receipt-and-payment schedule when deciding whether obligations can be met.
Operating-cycle methodology
Inventory days = average inventory / annual COGS × 365. Receivable days = average receivables / annual credit sales × 365. Payable days = average payables / annual COGS × 365. Cash conversion cycle adds the first two and subtracts the third. COGS is a proxy for credit purchases when estimating payable days.
Frequently asked questions
Do I need cash-cycle inputs?
No. That section is optional and independent of the balance-sheet calculation.
Why use averages instead of closing balances?
Averages better represent capital tied up over time, especially when sales and inventory are seasonal.
Is positive working capital the same as available cash?
No. Receivables and inventory are included in assets but may not turn into cash before bills fall due. Review ageing and payment dates.
Is negative working capital always a problem?
No. Cash-first businesses with fast turnover and supplier credit can operate this way. The result still needs a cash-flow and supplier-terms review.
Why is the ratio unavailable with no liabilities?
Dividing assets by zero does not yield a meaningful finite ratio. Assets and net working capital remain available for interpretation.
What to do next
Review the aged receivables, stock and supplier-payment schedule; use the cycle to identify which operational change could release cash.
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