Current Ratio Calculator
Calculate the current ratio to measure a company's ability to pay short-term obligations.
Assess liquidity using current assets and liabilities.
What Is the Current Ratio?
The Current Ratio is a liquidity ratio that measures a company’s ability to pay short-term obligations (due within one year) using its short-term assets. It is one of the first metrics investors and creditors review to assess financial health.
The Three Liquidity Ratios
Current Ratio (broadest):
Current Assets / Current Liabilities
Quick Ratio (acid-test, excludes inventory):
(Current Assets − Inventory) / Current Liabilities
Cash Ratio (strictest):
Cash and Cash Equivalents / Current Liabilities
What Counts as Current Assets?
Current assets are expected to be converted to cash within one year:
- Cash and cash equivalents
- Short-term investments (marketable securities)
- Accounts receivable
- Inventory
- Prepaid expenses
What Counts as Current Liabilities?
Current liabilities are due within one year:
- Accounts payable
- Short-term debt and current portion of long-term debt
- Accrued expenses
- Deferred revenue
How to Interpret the Current Ratio
| Current Ratio | Interpretation |
|---|---|
| Below 1.0 | Danger — more short-term obligations than assets |
| 1.0 – 1.5 | Low — manageable but limited cushion |
| 1.5 – 2.0 | Healthy — solid short-term liquidity |
| 2.0 – 3.0 | Strong — comfortable liquidity buffer |
| Above 3.0 | May indicate idle assets not being put to work |
Working Capital
A closely related concept is Working Capital:
Working Capital = Current Assets − Current Liabilities
Positive working capital means the business can fund day-to-day operations. Negative working capital is a red flag in most industries (though some high-turnover retailers like grocery stores run successfully with slightly negative working capital by design).
Worked Example
A company has $450,000 in current assets (including $80,000 inventory) and $250,000 in current liabilities, plus $120,000 cash:
- Current Ratio = $450,000 / $250,000 = 1.80 (Healthy)
- Quick Ratio = ($450,000 − $80,000) / $250,000 = 1.48
- Cash Ratio = $120,000 / $250,000 = 0.48
- Working Capital = $450,000 − $250,000 = $200,000