Current Ratio Calculator
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The current ratio compares what a company owns that turns into cash within a year with what it owes within a year: current assets ÷ current liabilities. $250,000 of current assets against $125,000 of current liabilities gives a ratio of 2.0.
Type the problems from this lesson and check each step.
| Working capital | $125,000 |
| Quick (acid-test) ratio | 1.48 |
| Cash ratio | 0.4 |
Show steps
- Current ratio = current assets ÷ current liabilities = $250,000 ÷ $125,000 = 2
- Quick ratio = (current assets − inventory − prepaid expenses) ÷ current liabilities = ($250,000 − $60,000 − $5,000) ÷ $125,000 = 1.48
- Cash ratio = (cash + marketable securities) ÷ current liabilities = 0.4
How to use the current ratio calculator
- Enter total current assets and total current liabilities from the balance sheet.
- Add inventory and prepaid expenses for the quick ratio, and cash and securities for the cash ratio.
- Press Calculate.
Liquidity ratio formulas
- Current ratio = current assets ÷ current liabilities
- Quick ratio = (current assets − inventory − prepaid expenses) ÷ current liabilities
- Cash ratio = (cash + marketable securities) ÷ current liabilities
- Working capital = current assets − current liabilities
Interpreting the current ratio
| Ratio | Usual reading |
|---|---|
| Below 1 | Short-term debts exceed short-term assets |
| 1 to 1.5 | Covered, with a thin cushion |
| 1.5 to 3 | Generally comfortable |
| Above 3 | Very liquid; cash may be idle |
Norms vary by industry: grocery chains often run near 1 because inventory turns quickly.
Worked example
Current assets $250,000 (including $60,000 inventory and $5,000 prepaid), current liabilities $125,000. Current ratio = 2.0; quick ratio = 185,000 ÷ 125,000 = 1.48; with $50,000 of cash and securities, cash ratio = 0.4.
Liquidity ratios practice quiz: 10 questions
Test yourself with 10 multiple-choice questions. Choose an answer and press Submit to see if you are right and why. Your score appears at the end.
Quiz complete
Frequently asked questions
What is a good current ratio?
Often 1.5 to 3, but it depends on the industry and how fast inventory and receivables turn into cash.
What is the difference between the current ratio and the quick ratio?
The quick ratio leaves out inventory and prepaid expenses, which cannot quickly be turned into cash.
Can the current ratio be too high?
Yes. It can mean cash, receivables or inventory are piling up instead of being invested.
Where do I find the numbers?
On the balance sheet, under current assets and current liabilities.
What is working capital?
Current assets minus current liabilities: the cushion available to run day-to-day operations.
Sources
- Corporate Finance Institute: Current Ratio Formula
- Corporate Finance Institute: Quick Ratio
- OpenStax Principles of Accounting, Volume 1: Financial Accounting
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