Contents
- 1 Working Capital Calculator — CCC, Current Ratio & Liquidity
Working Capital Calculator — CCC, Current Ratio & Liquidity
Calculate net working capital, current ratio, quick ratio and Cash Conversion Cycle (CCC) for your business with industry benchmarks.
What is Working Capital?
Working capital is the cash tied up in day-to-day business operations — money locked in inventory, receivables from customers, minus what you owe suppliers (payables). It’s the “blood” of a business. Formula: Working Capital = Current Assets − Current Liabilities.
| Item | Type |
|---|---|
| Cash, Bank, Liquid Investments | Current Asset |
| Inventory (raw + WIP + finished) | Current Asset |
| Receivables (Debtors) | Current Asset |
| Prepaid Expenses | Current Asset |
| Payables (Creditors) | Current Liability |
| Short-Term Loans, OD, CC | Current Liability |
| Accrued Expenses (salary, utility) | Current Liability |
Cash Conversion Cycle (CCC)
CCC measures days from spending cash on raw materials to receiving cash from customers. Lower is better.
CCC = DIO + DSO − DPO
- DIO (Days Inventory Outstanding): Inventory ÷ (COGS/365) — time inventory sits before being sold
- DSO (Days Sales Outstanding): Receivables ÷ (Revenue/365) — time customers take to pay
- DPO (Days Payable Outstanding): Payables ÷ (COGS/365) — time you take to pay suppliers
Indian Industry CCC Benchmarks
| Industry | Typical CCC (days) |
|---|---|
| FMCG (HUL, Nestle) | 0 to 20 |
| IT Services (TCS) | 60 to 80 |
| Pharma (branded) | 80 to 120 |
| Auto OEMs | 30 to 60 |
| Retail (D-Mart) | 15 to 30 |
| Steel/Cement | 40 to 80 |
| Construction/Real Estate | 200 to 500+ |
Why Working Capital Management Matters
Profitable businesses can still go bankrupt if working capital is mismanaged. Examples: IL&FS, DHFL, several real-estate developers reported profits but couldn’t pay short-term obligations.
- Cash crunch: Receivables stretching 60→120 days while payables stay 30 → you fund the gap from cash
- Higher interest cost: Funding WC via CC/OD at 10-12% eats into margins
- Inventory write-offs: Slow-moving stock becomes obsolete, gets written down
- Lost growth opportunities: Cash stuck in operations can’t fund expansion, new products, capex
Working Capital Financing Options (India)
| Type | Provider | Rate (2025) | Best For |
|---|---|---|---|
| Cash Credit (CC) | Banks (HDFC, ICICI, SBI) | 9-12% | Regular WC needs |
| Overdraft (OD) | Banks | 9-13% | Short-term gaps |
| Bill Discounting | Banks, NBFCs (TReDS) | 8-11% | MSMEs with corporate buyers |
| Factoring | NBFCs (KredX, M1xchange) | 10-14% | SMEs without bank limits |
| Invoice Discounting (TReDS) | RXIL, M1, Invoicemart | 7-10% | MSMEs supplying corporates |
| Letter of Credit (LC) | Banks | 1-3% fee | Imports |
| Trade Credit | Suppliers | Free (if on time) | All businesses |
Section 43B(h) — MSME Payment Rule
From AY 2024-25, Section 43B(h) of Income Tax Act mandates payments to MSME suppliers within 45 days (if agreement) or 15 days (if no agreement). Otherwise, the buyer cannot claim the expense as deduction — pushing tax liability higher. This has tightened DPO for buyers and improved DSO for MSME sellers.
How to Optimise Working Capital
- Inventory: JIT (Just-in-Time), ABC analysis, faster slow-mover clearance, demand forecasting
- Receivables: Tighter credit policy, early-payment discount (2/10 net 30), weekly aging review, factoring/discounting
- Payables: Negotiate longer terms with non-critical suppliers, take early-payment discounts when ROI > cost of capital, use TReDS for MSME payments
- Cash: Sweep accounts (auto-move idle to liquid funds), 13-week cash flow forecast, centralised treasury for groups
Frequently Asked Questions
What is negative working capital — is it bad?
Not always. Negative WC means suppliers fund your operations (DPO > DIO+DSO). FMCG giants (HUL) and quick-commerce companies operate with negative WC — customers pay upfront, suppliers wait. It’s a sign of bargaining power.
Working capital vs cash flow — what’s the difference?
WC is a balance-sheet snapshot (point-in-time). Cash flow is movement over a period. Improving WC by 10 days = one-time cash release equal to 10 days of operations. Cash flow is recurring.
How do banks decide my WC limit?
Banks use: (1) Tandon Committee methods, (2) Cash Budget method for seasonal businesses, (3) Turnover method (20-25% of projected turnover). MSME WC loans up to ₹10 cr typically have simplified appraisal under PSL targets.
Should I take more WC loan to grow faster?
Only if ROCE > cost of borrowing. ROCE 18% and bank rate 11% — borrowing makes sense. ROCE 9% — you’re destroying value with debt.
How do I improve DSO quickly?
(1) Invoice immediately on delivery (not month-end), (2) Offer 2% discount for payment within 10 days, (3) UPI/RTGS/instant payment links instead of cheques, (4) Advance + balance on delivery for new customers, (5) TReDS for corporate buyers.
What ratios should I track monthly?
Current ratio (target 1.5-2.5), Quick ratio (target >1), DIO, DSO, DPO, CCC. Trend matters more than absolute numbers — rising DSO is a red flag.
What’s a healthy current ratio?
1.5-2.5 typically. <1 = liquidity crunch risk. >3 = idle cash (could be invested for returns). Industry-specific: capital-intensive (auto, cement) accept lower; service businesses prefer higher.
Can WC be funded via equity?
Yes — fresh equity infusion directly funds WC. Common in startups (each VC round funds WC for next 12-18 months) and in NSE-listed companies via QIPs/rights issues. Equity is expensive (15-25% required return) so debt is usually cheaper if creditworthy.
What’s the difference between gross and net WC?
Gross WC = Total Current Assets. Net WC = Current Assets − Current Liabilities. Net WC is what you actually ‘own’ after settling short-term dues. Most planning uses Net WC.
How does GST affect WC?
Output GST collected from customers must be paid to govt by 20th of next month. Input GST (ITC) is claimed in same period. Cash impact: timing mismatch. For exporters, GST refund cycles (60-90 days) lock significant cash.
Should startups focus on WC or growth?
Both. High-growth startups need increasing WC each quarter — fund via fresh equity rounds. Bootstrapped: keep WC tight (negative if possible — subscription, prepayment model). Never let growth outpace WC funding — that’s where most fast-growing startups fail.
How long should my CCC be?
Industry-specific. Aim for top quartile of your industry. FMCG: aim for negative CCC. Manufacturing: 30-50 days. SaaS/services: focus on DSO. Construction/EPC: managing 200+ day CCC is normal but requires strong financing.