Enter your company's current assets and current liabilities to calculate the current ratio (also called the working capital ratio). You'll see the ratio value along with a quick interpretation of what it means for your company's short-term liquidity and financial health.
Current Ratio
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Working Capital
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Liquidity Assessment
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The current ratio is a liquidity metric that measures a company's ability to pay off its short-term obligations using its short-term assets. It compares total current assets (cash, receivables, inventory) to total current liabilities (accounts payable, short-term debt) due within one year. It is also commonly referred to as the working capital ratio.
The current ratio formula is simple: Current Ratio = Current Assets ÷ Current Liabilities. For example, if a company has $500,000 in current assets and $250,000 in current liabilities, its current ratio is 2.0, meaning it has $2 in assets for every $1 of short-term debt.
A current ratio between 1.5 and 3.0 is generally considered healthy, depending on the industry. A ratio below 1.0 suggests the company may struggle to meet short-term obligations, while a ratio above 3.0 might indicate that assets are not being used efficiently. Most lenders and analysts prefer to see a ratio of at least 1.0 to 2.0.
The current ratio is one of the most widely used indicators of financial health. Lenders, investors, and creditors use it to assess whether a business can cover its short-term debts without needing to raise additional capital or sell long-term assets. It's a quick snapshot of a company's liquidity position.
From a balance sheet, locate the 'Current Assets' section (which includes cash, accounts receivable, and inventory) and the 'Current Liabilities' section (which includes accounts payable and short-term borrowings). Divide the total current assets by total current liabilities to get the ratio.
The quick ratio (also called the acid-test ratio) is a stricter measure of liquidity. Unlike the current ratio, it excludes inventory and other less-liquid assets from current assets before dividing by current liabilities. This makes the quick ratio more conservative and useful when inventory cannot be easily converted to cash.
A current ratio below 1.0 means a company has more short-term liabilities than short-term assets, which could signal liquidity problems. The business may have difficulty meeting its upcoming financial obligations without securing additional financing or selling longer-term assets.