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Current Ratio Calculator

Check a company's short-term liquidity by dividing current assets by current liabilities.

How it is calculated

The current ratio tests whether a business can cover its short-term debts: current ratio = current assets ÷ current liabilities. Current assets are cash, receivables, inventory and other items expected to turn into cash within a year; current liabilities are the obligations due within the same period. Both go in the same currency. Liabilities must be above zero and assets cannot be negative. The tool also shows working capital = assets − liabilities, and labels the ratio: 2.00 or more is "Strong", 1.00 to just under 2.00 is "Healthy", below 1.00 is "Weak". These bands are simple rules of thumb; acceptable levels differ by industry.

Worked example

A shop has current assets of 150,000 and current liabilities of 100,000. Ratio = 150,000 ÷ 100,000 = 1.50. Working capital = 150,000 − 100,000 = $50,000.00 (the tool shows money in dollars). Because 1.50 is between 1 and 2, the status is Healthy: the shop holds one and a half times what it owes in the short term.

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Common mistakes

  • Including long-term assets or debts. Only items due or convertible within about a year belong here; a building or a 10-year loan does not.
  • Reading a high ratio as always good. A very high value can mean idle cash or slow-selling inventory.
  • Swapping the two inputs. Putting liabilities in the assets box gives the inverse, so 0.67 instead of 1.50.
  • Counting slow inventory at full value. Stock that is hard to sell inflates assets, so the quick ratio may tell a harsher story.
  • Comparing across industries. A ratio that is normal for a retailer may be poor for a software firm.

Sources

About this calculator

This calculator computes the current ratio, a core liquidity metric: Current Ratio = Current Assets / Current Liabilities. It also reports working capital (current assets minus current liabilities), the cash cushion a company has to cover obligations due within a year.

Accountants, financial analysts, and small business owners use it when reading a balance sheet to judge whether a company can meet its short-term debts, cover payroll, and pay suppliers without raising new financing. A ratio well above 1 signals comfortable liquidity, while a ratio below 1 can flag cash-flow trouble; lenders and investors routinely check it before extending credit.

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Comments (1)

  • Editorial team

    A ratio looks better than it may be if inventory is slow to sell. To get a stricter view with this same tool, subtract inventory from current assets before entering them. If the shop in the guide holds 80,000 of its 150,000 in stock, the stricter figure is 0.70, not 1.50. Receivables that customers pay late deserve the same suspicion. Which items does your balance sheet count among current assets?

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