Current Ratio Calculator

How it works

Current ratio = current assets ÷ current liabilities

The current ratio is a liquidity test: it divides everything a business can turn to cash within a year (current assets — cash, receivables, inventory) by everything it owes within a year (current liabilities — payables, short-term debt). A ratio above 1 means short-term assets cover short-term obligations, so the business can pay its near-term bills without new financing. Many analysts view a ratio between roughly 1.5 and 3 as healthy, though the ideal varies by industry. A very high ratio is not automatically good — it can mean cash or inventory is sitting idle instead of being invested in growth. Because it includes inventory, which can be slow to sell, the current ratio is a looser test than the quick ratio.

Worked example

A company with $150,000 of current assets and $100,000 of current liabilities has a current ratio of 150,000 ÷ 100,000 = 1.50. It holds $1.50 of short-term assets for every $1 of short-term obligations — a modest but healthy cushion, and $50,000 of positive working capital.

Frequently asked questions