Working capital formula accounting is a method of evaluating a business’s financial health that focuses on the relationship between current assets and current liabilities. The formula, which can be simplified as Current Assets minus Current Liabilities, measures how quickly a business can convert its current assets into cash and then use it to pay off debts. A higher working capital ratio suggests greater financial stability, whereas a lower one may signal potential trouble ahead. By monitoring the ratio over time, businesses can spot developing problems before they become too severe.