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Current ratio calculator
Read the current ratio, quick ratio (acid-test), and working capital in one pass. Colour-coded against industry benchmarks.
Calculate current ratio & quick ratio
Method
Understanding liquidity ratios
Current ratio
The current ratio measures a company's ability to pay short-term obligations with its short-term assets. A ratio above 1.0 means the company has more current assets than current liabilities.
Current Ratio = Current Assets / Current Liabilities
Quick ratio (acid-test)
The quick ratio is a stricter measure of liquidity that excludes inventory and prepaid expenses — assets that may be difficult to convert to cash quickly.
Quick Ratio = (Current Assets - Inventory - Prepaid Expenses) / Current Liabilities
The quick ratio is more conservative and better reflects a company's ability to meet obligations without selling inventory.
Working capital
Working capital is the absolute difference between current assets and current liabilities. Positive working capital indicates the company can fund current operations and invest in future growth.
Working Capital = Current Assets - Current Liabilities
Questions
Frequently asked
- What is a good current ratio?
- A current ratio between 1.5 and 3.0 is generally considered healthy. Below 1.0 suggests liquidity problems. However, the ideal ratio varies by industry — retail companies often operate with lower ratios than technology firms. Compare against industry peers for the most meaningful assessment.
- What is the difference between current ratio and quick ratio?
- The current ratio includes all current assets, while the quick ratio excludes inventory and prepaid expenses. The quick ratio is more conservative because inventory may take time to sell and prepaid expenses cannot be converted to cash. If the two ratios differ significantly, the company may rely heavily on inventory for liquidity.
- Can the current ratio be too high?
- Yes. A very high current ratio (above 3.0) may indicate the company is not efficiently using its assets. Excess cash could be invested for growth, used to pay down debt, or returned to shareholders. An excessively high ratio warrants investigation.
- What are current assets?
- Current assets are resources expected to be converted to cash within one year: cash and equivalents, accounts receivable, inventory, short-term investments, and prepaid expenses.
- How often should I calculate the current ratio?
- Most businesses calculate liquidity ratios quarterly with their financial statements. However, companies with seasonal fluctuations or rapid growth should monitor more frequently, potentially monthly, to catch liquidity issues early.
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