How do calculate an increase in working capital?

Answer 1

To calculate an increase in working capital, you first need to understand what working capital is. It represents the difference between a company’s current assets (cash, inventory, receivables) and current liabilities (Accounts Payable, short-term debt, etc.).

The formula is:

Working Capital = Current Assets – Current Liabilities

To find the increase in working capital, compare two time periods for example, this year versus last year.

Increase in Working Capital = Working Capital (Current Year) – Working Capital (Previous Year)

Example:

If a business had ₹500,000 in working capital last year and ₹650,000 this year:

Increase = ₹650,000 – ₹500,000 = ₹150,000

This means the business has ₹150,000 more liquidity to manage operations or invest.

A rise in working capital generally indicates that a company’s short-term financial health has improved, though it can also mean funds are tied up in inventory or receivables.

For small businesses looking to improve their working capital position, financial partners like Better Rise Capital offer customized working capital loans and commercial lending solutions to balance cash flow and support daily operations.

Learn more at BetterRiseCapital

Answer 2

To calculate an increase in working capital, first determine the working capital for two different periods by subtracting current liabilities from current assets for each period. The formula is: Working Capital = Current Assets - Current Liabilities. Then, subtract the earlier period's working capital from the later period's working capital. The difference will give you the increase in working capital.