Current Ratio Calculator
Every $1 of short-term debt is covered by $2.00 of current assets.
How the current ratio calculation works
Current ratio = current assets ÷ current liabilities
$250,000 of current assets against $125,000 of current liabilities is 2.0: two dollars of short-term assets for every dollar due.
The quick ratio leaves out inventory
Inventory can take months to sell. ($250,000 − $80,000) ÷ $125,000 = 1.36.
Working capital is the difference in dollars
$250,000 − $125,000 = $125,000 available to run the business after short-term debts.
Compare with your own trade
Below 1 means short-term debts are bigger than short-term assets. Above 1, what counts as healthy depends on the trade: a shop that sells its stock in days can run lower than a manufacturer holding months of materials. Watch the trend over several quarters, and check any minimum ratio in your loan agreement.
Worked example. With $250,000 of current assets, $125,000 of current liabilities and $80,000 of inventory, the current ratio is 2.00, the quick ratio is 1.36 and working capital is $125,000.
Current Ratio FAQ
How do you calculate the current ratio?
Divide total current assets by total current liabilities, both from the balance sheet. $250,000 ÷ $125,000 = 2.0.
What is a good current ratio?
There is no single official number. Below 1 means short-term debts exceed short-term assets, which is a warning sign. Above 1, compare with businesses in your own trade and with your own past quarters. A very high ratio can mean cash or inventory sitting idle. If you have a bank loan, the agreement may set a minimum, so that is the number to beat.
What is the quick ratio (acid-test ratio) formula?
Quick ratio = (current assets − inventory − prepaid expenses) ÷ current liabilities. With $250,000 of current assets, $80,000 of inventory and $125,000 of current liabilities: $170,000 ÷ $125,000 = 1.36. It is stricter than the current ratio because it only counts assets that turn into cash quickly.
What is the difference between the current ratio and the quick ratio?
The quick ratio removes inventory and prepaid expenses, counting only assets that turn into cash fast. It's a stricter test of paying bills on time.
What is the working capital formula?
Working capital = current assets − current liabilities. $250,000 − $125,000 = $125,000. It is the same comparison as the current ratio, shown in dollars instead of as a ratio. Lenders often look at both.
Is the working capital ratio the same as the current ratio?
Yes. "Working capital ratio" is another name for current assets ÷ current liabilities. Working capital itself is the dollar difference, so a ratio of 2.0 and working capital of $125,000 can describe the same balance sheet.