Is negative working capital bad?

Usually yes — it means short-term debts exceed short-term assets. But some businesses (like supermarkets) operate with negative WC by collecting cash before paying suppliers.

How much working capital is needed?

Depends on business type. Rule of thumb: enough to cover 2-3 months of operating expenses. Manufacturing needs more WC than services.

Working Capital Formula

Working capital represents the money available for day-to-day operations. Positive working capital means the business can fund its current operations and invest in growth.

Net Working Capital

Working Capital = Current Assets - Current Liabilities

Where:

CA = Current assets (cash, receivables, inventory)
CL = Current liabilities (payables, short-term debt)

Step-by-Step:

1
Sum current assets
Cash + accounts receivable + inventory + other short-term assets.
2
Sum current liabilities
Accounts payable + short-term loans + current portion of long-term debt.
3
Subtract
CA - CL = Net Working Capital.

Worked Examples:

Retail business

Current Assets: ₹25LCurrent Liabilities: ₹18L

Result: WC = ₹7L

25L - 18L = ₹7L working capital. The business has ₹7L buffer for operations.