Cash & runway
Working capital: net, operating, and the change
Three numbers get called working capital and they answer different questions. This computes all three, including the change that consumes cash as you grow.
Three numbers get called working capital and they answer different questions. This computes all three, including the change that consumes cash as you grow.
Balance-sheet figures at one date. Net working capital includes cash and the current portion of debt; operating working capital excludes both, because neither belongs to the trading cycle. Deferred revenue is treated as a current liability — for a subscription business it is usually the largest one, and it is why many SaaS companies run a negative operating working capital and are perfectly healthy.
Net working capital = Current assets − Current liabilities. It is the cushion between what you can turn into cash within a year and what you owe within a year. A lender covenants on it; a board asks about it; and on its own it can be misleading. The definition and what a healthy level looks like sit on working capital.
The calculator produces three figures, because three different numbers travel under this name and they answer different questions.
| Measure | What it includes | What it is for |
|---|---|---|
| Net working capital | All current assets and liabilities, including cash and current debt | The balance-sheet figure lenders covenant on |
| Operating working capital | Receivables, inventory and payables, excluding cash and debt | What the trading cycle itself ties up — the one an operator can move |
| Change in NWC | The movement between two periods | The cash-flow line: an increase consumes cash |
Operating working capital is the version worth managing. Cash and debt are financing, not trading — including them tells you about your funding, not about how efficiently the business converts sales into cash.
This is the mechanic behind a profitable company running out of money. Growth means more receivables outstanding and, if you hold stock, more inventory. Both are cash you have already committed and cannot yet spend. The payables side funds part of it, but rarely all.
So an increase in operating working capital is a use of cash in the period, even in a month where the P&L looks strong. That is why the change matters as much as the level, and why it belongs next to your runway rather than filed under balance-sheet housekeeping.
A subscription business that bills annually in advance carries a large deferred revenue balance: cash collected for service not yet delivered. Deferred revenue is a current liability, so it pushes operating working capital negative.
That is not distress. It means customers fund the operation, and it is one of the structural advantages of prepaid business models. Reading a negative figure as a warning without looking at what is driving it is the most common misreading of this metric.
The calculator also prints the current ratio — current assets over current liabilities. Above 1.5 is generally comfortable, below 1.0 means short-term obligations exceed short-term assets. But it treats inventory nobody wants as equal to cash in the bank, so a healthy ratio built on slow stock is not healthy. Read it alongside the cash conversion cycle.
Every input here comes from the balance sheet, so the figures are only as current as the close. We close daily rather than monthly, which means working capital is a number you can act on rather than one you review six weeks late — see bookkeeping.