Working capital calculator: balance sheet, operating cycle and bank limit
Working capital is what a business has in current assets — cash, receivables, stock — after paying its current liabilities. This working capital calculator works it out from your balance sheet with the current ratio, quick ratio, the operating cycle and the cash conversion cycle, so you can see how many days of sales are tied up before cash comes back.
It also does the working capital calculation for a bank loan in India the two ways banks use: the turnover method recommended by the Nayak Committee for small enterprises, and the Tandon Committee’s maximum permissible bank finance (MPBF), methods I to III. Amounts can be in rupees or dollars, and everything runs in your browser. Results are planning estimates — the bank’s own appraisal decides the limit.
How to use the Working Capital Calculator
- Enter the current assets from the balance sheet: cash, receivables, inventory and other current assets.
- Enter the current liabilities: trade payables, other current liabilities and provisions, and short-term bank borrowings.
- Add the year’s revenue and cost of sales to get the operating and cash conversion cycles.
- Enter next year’s projected turnover for the turnover method, and any core current assets for Tandon method III.
- Read the working capital, ratios and both bank limits, and copy the summary.
Working Capital Calculator features
From the balance sheet
Working capital, current ratio, quick ratio and cash ratio in one place.
Operating cycle
Inventory, receivable and payable days, the operating cycle and the cash conversion cycle.
Turnover method
25% of projected turnover as the requirement, a 5% margin from you, and the lower of 20% of turnover and the requirement less your margin.
MPBF methods I–III
The three Tandon formulas side by side, with the working written out.
Working capital formulas
- Working capital = current assets − current liabilities. Current ratio = current assets ÷ current liabilities; quick ratio leaves out inventory.
- Operating cycle = inventory days + receivable days, where inventory days = inventory ÷ cost of sales × 365 and receivable days = receivables ÷ revenue × 365.
- Cash conversion cycle = operating cycle − payable days (payables ÷ cost of sales × 365). A shorter cycle needs less working capital.
- Example: current assets ₹30 lakh and current liabilities ₹16 lakh give working capital of ₹14 lakh and a current ratio of 1.88. With ₹1.2 crore of sales and ₹90 lakh cost of sales, stock lasts 61 days, customers pay in 37 days and suppliers are paid in 32 days — a 97-day operating cycle and a 65-day cash cycle.
Working capital calculation by turnover method
The Nayak Committee found that small units need working capital of about 25% of their annual turnover, with banks financing about 80% of that. So banks assess the requirement at 25% of projected turnover, expect at least 5% of turnover from the business as margin, and lend up to 20%. If your actual net working capital is more than 5%, the limit is the requirement less what you already have. RBI asked banks to implement the recommendations in its circular of 2 March 2001, first for limits up to ₹1 crore; bank MSME policies now apply the method up to ₹5 crore.
Example: projected turnover ₹1.4 crore → requirement ₹35 lakh, margin ₹7 lakh, 20% = ₹28 lakh. Net working capital is already ₹14 lakh, so the requirement less margin is ₹21 lakh, and the limit is the lower figure, ₹21 lakh.
Maximum permissible bank finance (Tandon methods)
Method I: 75% of the working-capital gap (current assets less current liabilities other than bank borrowings). Method II: 75% of current assets less other current liabilities, which implies a current ratio of 1.33. Method III: as II, but core current assets — the permanent minimum level — are financed entirely by long-term funds. In the example the three give ₹15 lakh, ₹12.5 lakh and ₹9.5 lakh. RBI no longer prescribes MPBF, but many banks still use it for larger borrowers. For month-by-month cash, use the cash flow calculator.
Working Capital Calculator FAQ
How do I calculate working capital from a balance sheet?
Add the current assets (cash, receivables, inventory, other current assets) and subtract the current liabilities (payables, provisions, short-term borrowings). The calculator also gives the ratios and cycle.
How is working capital calculated for a bank loan?
For small businesses, Indian banks usually use the turnover method: 25% of projected annual turnover as the requirement, 5% from you, and up to 20% from the bank. Larger borrowers are assessed on projected balance sheets, often with MPBF.
What is a good current ratio?
Banks traditionally look for about 1.33 or more, the level implied by the second Tandon method. Much higher can mean idle cash or slow-moving stock.
What is the difference between operating cycle and cash conversion cycle?
The operating cycle is the time from buying stock to collecting cash from customers. The cash conversion cycle subtracts the time you take to pay suppliers.
Is this the limit my bank will sanction?
No. It is an estimate; the bank checks your projections, security, credit history and its own policy.