Working capital is used in fundamental analysis to determine a company's short-term financial health and efficiency. A company's working capital is calculated by subtracting its current liabilities from its current assets.
Example Illustrating the Working Capital Formula in Excel
To compare the efficiency and short-term financial health of Facebook Inc. and Twitter Inc., look at the respective companies' balance sheets. For the period ending Dec. 31, 2017, Facebook had total current assets of $48.56 billion and total current liabilities of $10.18 billion. For that same period, Twitter had total current assets of $5.32 billion and total current liabilities of $2.37 billion.
In Excel, right-click on columns A, B and C, and left-click on Column Width. Change the value to 28 for each respective column. Then, click OK. Enter "Facebook" into cell B1 and "Twitter" into cell C1.
Next, enter "Total Current Assets" into cell A2, "Total Current Liabilities" into cell A3 and "Working Capital" into cell A4.
Enter "=48.56" into cell B2 and "=10.18" into cell B3. The working capital of Facebook is calculated by entering the formula "=B2-B3" into cell B4. Facebook's resulting working capital is $38.38 billion.
Next, enter "=5.32" into cell C2 and "=2.37" into cell C3. Twitter's working capital is calculated by entering the formula "=C2-C3" into cell C4. Twitter's resulting working capital is $2.95 billion.
Since the current assets of Facebook exceed its current liabilities, it is unlikely that Facebook will have trouble paying back its creditors in the short-term. Similarly, Twitter is likely to pay back its creditors in the short-term. (For related reading, see "How Working Capital Works.")