Knowledge base · Accounting & tax · 6 minuten · 10 Sep 2026

Calculating working capital: the formula and what it tells you

Working capital is one of the few figures you can work out on the back of an envelope. The formula is a subtraction. The answer on its own says little without context. This article gives the formula, a worked example, and the four levers you can pull.

The formula

Working capital is your current assets minus your current liabilities.

Working capital = current assets - current liabilities

Current assets are the holdings you can turn into cash within a year: your cash, your receivables and your stock. Current liabilities are the obligations falling due within a year: trade creditors, tax, payroll tax and the drawn part of your overdraft.

The answer is an amount, not a percentage. That makes it usefully concrete.

A worked example

Take a trading business with this balance sheet position:

cash: 120,000 euros
receivables: 1,400,000 euros
stock: 900,000 euros
trade creditors: 850,000 euros
tax and payroll tax: 210,000 euros
overdraft drawn: 400,000 euros

Current assets are then 2,420,000 euros and current liabilities 1,460,000 euros. Working capital comes to 960,000 euros.

That looks comfortable. But look at where it sits: 2.3 million of the 2.42 million is in receivables and stock, and only 120,000 euros is available straight away. Healthy on paper, tight in practice.

Why the amount alone says too little

That is why two ratios sit alongside the subtraction.

The current ratio is current assets divided by current liabilities. In the example: 2,420,000 divided by 1,460,000 is 1.66.

The quick ratio leaves the stock out, because stock cannot be turned into cash quickly. Then: 1,520,000 divided by 1,460,000 is 1.04. That is a very different picture.

What those two figures actually say and where the thresholds sit is set out in improving liquidity.

The four levers

Improving your working capital runs along four items, and no more:

Collect receivables faster. Every day you shorten your DSO frees up cash. What helps is set out in receivables management.
Hold stock for less time. Fewer days of stock means less capital tied up, but it touches your delivery reliability.
Hold on to creditors longer. It works, until you miss your supplier's early payment discount. That trade-off is in the early payment discount from your suppliers.
Bring in external finance. That shifts the item rather than shrinking it.

The first three are internal and take time. The fourth is the quickest, and it is also where the brake sits: the term you have to bridge is not yours to set. Without an agreement the payment term is 30 days, between businesses it may run to 60 days, and from a large company to an SME supplier a maximum of 30 days applies.¹

What a financier does with your answer

Here is where the subtraction and practice part company. A working capital financier does not look at the amount but at the composition.

Of the 1.4 million in receivables in the example, not all of it is fundable. What counts is a receivable that exists, becomes due, is free of third-party rights and whose underlying performance has been delivered. And each debtor carries a limit, so twenty spread customers work out differently from one large one.

The full treatment of that is in financing on your assets and on your business.

That also explains why businesses with the same working capital get a different facility. In 2025 only 9 per cent of Dutch SMEs got as far as a finance application while 15 per cent had a need, and of the businesses that did apply, 93 per cent were granted the amount in full or in part.²

What it comes down to

The formula costs you a minute. The question after that is where your working capital is locked up, because that decides what you can do about it.

If it sits in your receivables, factoring is the route. If it sits in your stock, inventory finance. If your security is stuck with the bank, a business loan comes first.

Want that answer for your own balance sheet, take the Quickscan. It works it through and says which form fits.

Sources

Rijksoverheid, Minister Herbert: bedrijven en overheden, betaal je leveranciers op tijd, 18 June 2026.
Centraal Bureau voor de Statistiek, Mkb'er krijgt aangevraagde financiering vaker toegewezen, 4 February 2026.

About the author

Jaap van Aalst

Commercieel directeur, SOOF Finance

Jaap van Aalst started his first business almost thirty years ago, in staffing and secondment. That is where he saw for himself how many opportunities are lost when money sits too long in unpaid invoices.

Around eighteen years ago he moved into the factoring world, as commercial director. Since then he has sat across the table from countless business owners and seen at first hand what financing questions look like in practice. He looks further than the balance sheet: what the business does, where the opportunities are, and which form of finance genuinely moves it forward.

That is also the basis of his work at SOOF Finance. His starting point is simple: finance is not an end in itself, but a means by which a good entrepreneur delivers on their plans.

Ask your question

Frequently asked questions

Current assets minus current liabilities. Current assets are your cash, receivables and stock. Current liabilities are the obligations falling due within a year.

No. A high figure that sits entirely in stock and receivables means little is available straight away. So look at your quick ratio as well.

That depends on the composition, not on the amount. Each debtor carries a limit, and a receivable only counts if the performance has been delivered and the receivable is free of third-party rights.