Working capital is the difference between current assets and current liabilities. It measures the short-term financial health and operational efficiency of your business.
Working capital is calculated as Current Assets minus Current Liabilities. It represents the cash and near-cash resources available to fund day-to-day operations after meeting short-term obligations. Positive working capital means you have more short-term assets than short-term debts - a healthy sign. Negative working capital means your short-term obligations exceed your short-term resources, which can signal financial distress. Working capital management is about optimising the components: collecting receivables faster (reducing AR days), turning inventory faster (reducing inventory days), and taking full advantage of supplier payment terms (without damaging relationships). The cash conversion cycle measures how long it takes to convert working capital investments back into cash. Effective working capital management is particularly important for growing businesses, which often need more working capital as they scale (more inventory, larger receivables). SortBooks provides real-time working capital visibility and helps optimise the cycle by monitoring receivables ageing, payables timing and cash flow patterns.
SortBooks automates the bookkeeping processes related to working capital by connecting to your Xero account and using AI to categorise transactions, reconcile bank feeds and generate accurate reports. Instead of manually managing working capital, SortBooks handles it automatically with 97%+ accuracy - saving you hours every week and ensuring your books are always up to date and compliant.
Current assets are resources your business expects to convert to cash, sell or consume within 12 months. They include cash, accounts receivable, inventory and prepaid expenses.
Current liabilities are debts and obligations your business must pay within 12 months. They include accounts payable, short-term loans, accrued expenses and tax payable.
Cash flow is the movement of money in and out of your business. Positive cash flow means more money coming in than going out. It is often considered more important than profit for business survival.
Liquidity measures how quickly and easily your business can convert assets to cash to meet short-term obligations. High liquidity means you can pay bills without difficulty.
The current ratio measures your ability to pay short-term obligations by dividing current assets by current liabilities. A ratio above 1.0 indicates you can cover your short-term debts.
SortBooks handles all the complexity automatically. Just connect Xero and let AI manage your books.