How to Calculate Working Capital: Formula and UAE Examples (2026)

Short answer: working capital = current assets minus current liabilities. Current assets are what you expect to turn into cash within 12 months (cash, receivables, inventory). Current liabilities are what you must pay within 12 months (supplier bills, short-term borrowings, VAT and corporate tax due, accrued salaries). A positive number means you can cover your short-term obligations from short-term resources. A negative number means you can't, at least on paper.

The formula takes ten seconds. Getting the inputs right, and reading the result honestly, is where most UAE SMEs go wrong. This guide covers both, with two worked examples in AED.

The working capital formula

Working capital = Current assets − Current liabilities

Two related measures are worth calculating at the same time:

• Working capital ratio (current ratio) = Current assets ÷ Current liabilities. A ratio of 1.0 means assets exactly cover liabilities. A common rule of thumb is 1.2 to 2.0, but the right level depends on your industry and payment cycle.
• Quick ratio = (Current assets − Inventory) ÷ Current liabilities. This strips out stock, which can take months to sell. It matters for trading and distribution businesses that carry heavy inventory.

For a deeper look at what a healthy ratio looks like, see our guide to the working capital ratio.

Step 1: List your current assets

Pull your latest balance sheet and take every item expected to become cash within the next 12 months, or within your normal operating cycle:

• Cash and bank balances, including short-term deposits you can access.
• Accounts receivable: invoices your customers have not paid yet.
• Inventory: raw materials, work in progress, and finished goods.
• Prepayments: rent, insurance, or licence fees paid in advance.

Be strict about receivables. An invoice that is 200 days overdue is not really a current asset. Atradius's 2026 survey of UAE businesses found that 47% of B2B sales are made on credit terms, that roughly two in five invoices are paid late, and that bad debt write-offs now run at just over 2% of B2B receivables [1]. If part of your receivables ledger is unlikely to be collected, deduct it before you calculate. Otherwise your working capital looks healthier than your bank balance will ever be. Our guide to managing bad debt covers how to provision for it.

Step 2: List your current liabilities

Under IFRS, a liability is classed as non-current only if the company has the right to defer settling it for at least twelve months after the reporting date [2]. Everything else is current. For a typical UAE SME that includes:

• Accounts payable: supplier invoices you have not paid yet.
• Short-term bank borrowings, overdrafts, and the portion of any longer facility that falls due within 12 months.
• VAT payable: output VAT collected on your sales that you owe the Federal Tax Authority, net of recoverable input VAT.
• Corporate tax payable: the FTA requires the corporate tax return and payment within 9 months of the end of the tax period [3], so tax accrued for the year just closed is a current liability.
• Accrued expenses: salaries, rent, utilities, and other costs incurred but not yet paid.
• Customer advances: deposits received for goods or services you still have to deliver.

The two tax lines are the ones SMEs most often leave out, because the cash sits in the same bank account as operating money. Leaving them out overstates working capital, sometimes by a lot.

Step 3: Run the numbers (two UAE examples)

Example 1: A building materials distributor in Sharjah

Current assets:

• Cash: AED 150,000
• Accounts receivable: AED 700,000
• Inventory: AED 400,000
• Total: AED 1,250,000

Current liabilities:

• Accounts payable: AED 520,000
• Short-term bank borrowings: AED 200,000
• VAT and corporate tax payable: AED 60,000
• Accrued salaries and rent: AED 120,000
• Total: AED 900,000

Working capital = AED 1,250,000 − AED 900,000 = AED 350,000. Current ratio = 1.39. Quick ratio = (1,250,000 − 400,000) ÷ 900,000 = 0.94.

The headline looks fine. The quick ratio tells a different story: without selling stock, the business cannot quite cover its bills. And with only AED 150,000 in cash against AED 900,000 due, most of the cushion is locked in customer invoices.

Example 2: An IT services firm in Dubai

Current assets: cash AED 40,000, receivables AED 560,000, prepaid licences AED 20,000, total AED 620,000. Current liabilities: payables to vendors AED 380,000, accrued salaries AED 210,000, VAT payable AED 45,000, customer advances AED 85,000, total AED 720,000.

Working capital = −AED 100,000. Current ratio = 0.86.

This firm is profitable, yet it struggles to make payroll every month. Its government and enterprise clients pay on 90-day terms while salaries are due every 30 days. Negative working capital here is a timing problem, not a profitability problem, and that difference decides the fix.

How to read your result

• Positive and comfortable (ratio above about 1.2): you can absorb a slow-paying customer or a large order. Check that the cushion is in cash, not in aging receivables or slow stock.
• Thin (ratio around 1.0): one late payment can force you to delay suppliers. Watch it monthly.
• Negative: not always a crisis. Supermarkets and some subscription businesses run negative working capital by design, because customers pay before suppliers do. For a B2B supplier selling on credit terms, though, it usually means cash is stuck in receivables.

Working capital is a snapshot. To see how long cash is actually tied up, pair it with the cash conversion cycle: days sales outstanding plus days inventory outstanding minus days payable outstanding. Our free cash conversion cycle calculator does the math, and our guide to calculating DSO explains the receivables side.

The pressure is broad. In its September 2025 Quarterly Economic Review, the Central Bank of the UAE listed working capital needs among the factors that continued to support borrowing in the UAE [4].

How to improve working capital

There are three levers, one for each part of the cycle.

1. Collect receivables faster. Invoice the day you deliver, send reminders before the due date rather than after, and offer an early payment discount where your margin allows it. Tighten payment terms for new customers. To see what slow payers really cost you, try the cost of late payment calculator.

2. Turn inventory faster. Identify slow-moving SKUs, stop reordering them, and clear old stock even at a lower margin. Cash on the shelf earns nothing.

3. Manage payables deliberately. Negotiate longer terms with key suppliers, but pay on the agreed date. Stretching suppliers past their terms damages relationships and often costs you better pricing later.

One nuance is worth knowing. Converting a receivable into cash does not change your working capital figure much, because one current asset simply becomes another. What it changes is liquidity: cash pays salaries, suppliers, and the FTA, while an unpaid invoice does not. For businesses like Example 2, liquidity is the real constraint.

Where Comfi fits

Comfi is a B2B payments platform built for this gap. With Invoice Discounting, you unlock cash tied up in unpaid receivable invoices within hours instead of waiting 60 or 90 days. With B2B Buy Now Pay Later, your buyers pay in 30, 60, or 90 days while you get paid upfront. Comfi is not a lender, nothing is borrowed, and you pay a transparent fee. You can estimate it with our invoice discounting calculator.

Comfi works with UAE-registered B2B businesses that have been operating for 12 months or more and earn at least AED 300,000 in monthly revenue. If your working capital calculation shows cash locked in customer invoices, see if you qualify.

Related reading

• The working capital cycle explained
• What is working capital management?
• Cash conversion cycle guide
• Accounts receivable turnover ratio

Sources

1. Atradius, "B2B payment practices trends in the United Arab Emirates 2026," July 31, 2026. group.atradius.com. Supports: share of B2B sales on credit, late invoices, bad debt rate.
2. IFRS Foundation, "IAS 1 Presentation of Financial Statements" (accessed October 2026). ifrs.org. Supports: twelve-month test for current vs non-current liabilities. IFRS 18, which carries this criterion forward, applies to annual periods beginning on or after January 1, 2027 (ifrs.org).
3. Federal Tax Authority, "Corporate Tax Returns Guide" (accessed October 2026). tax.gov.ae. Supports: corporate tax return and payment due within 9 months of period end.
4. Central Bank of the UAE, "Quarterly Economic Review, September 2025." centralbank.ae. Supports: working capital needs supporting borrowing demand.