Current Ratio Calculator

Current ratio = current assets ÷ current liabilities; quick ratio = (current assets − inventory) ÷ current liabilities; working capital = current assets − current liabilities; inventory share = inventory ÷ current assets × 100

Current assets

Everything the company expects to convert into cash within a year: cash itself, money owed by customers, inventory, and prepaid expenses. It is the numerator of both ratios and the denominator of the inventory share, and it is the one input that appears in all four outputs. What belongs in the figure is defined by accounting rules rather than by liquidity, which is why the pile can contain items — a slow-moving stock, a receivable from a customer in trouble — that will not in fact become cash within the year.

Current liabilities

Everything the company has to pay within a year: trade payables, wages and taxes due, the part of long-term debt falling due in the period, and any short-term borrowings. This is the shared denominator of both ratios, which is the reason the two can be read against each other directly — a change in this figure moves both, and moves them in the same direction.

Inventory

The value of goods held for sale, work in progress, and raw materials. It is the least liquid thing a company normally counts as a current asset — stock that will not sell does not become cash by waiting — and it is a field of its own here because the difference between the two ratios is entirely this number. A company with no inventory at all, such as a software firm or a consultancy, has two identical ratios, and this page will say so rather than treating the empty field as a mistake.

Current ratio

Current assets divided by current liabilities, printed to two decimals. Above one means the short-term assets cover the short-term debts; below one means they do not, though that is common and not automatically a crisis — a supermarket selling its stock before it has to pay for it runs below one comfortably. It is the number most often quoted and the one most often quoted without the industry it belongs to.

Quick ratio

The same division with inventory removed from the top, sometimes called the acid test. It answers the stricter question of whether the company could pay what it owes within the year without selling any of its stock. When the two ratios are far apart, most of the cushion is goods; when they are close, the company is holding cash and receivables instead, which is more resilient but also means less is tied up in whatever it sells.

Working capital

Current assets minus current liabilities, in money rather than as a multiple. It is the only one of the four that can be negative, and a negative figure is a normal answer rather than an error: it means the short-term debts exceed the short-term assets, which many businesses run with deliberately. Reading it in money alongside the ratio is useful because the ratio hides scale — half a million of working capital on a large balance sheet and on a small one are the same ratio and not the same situation.

Inventory share

Inventory as a percentage of current assets. This is the fourth figure and its denominator is different from the other three, which matters: it does not describe the company's ability to pay anything, it describes how wide the gap between the two ratios is. Twenty-four percent means roughly a quarter of the cushion is goods on a shelf; ninety-nine percent means the current ratio is being held up almost entirely by stock that has not sold yet.

Use it as a first look at short-term solvency, either on one company over several years or across several companies in one industry. The ratio is most informative when it is compared with something: with the same company a year ago, which shows whether the position is tightening, or with direct competitors, which is the only comparison that supplies the industry context the page itself cannot. It is also useful before extending credit or agreeing to a payment schedule, because it says something about whether the next twelve months of bills are covered. What it cannot do is decide anything on its own. A high current ratio can mean a company is sitting on cash it does not know how to deploy, or it can mean it is holding inventory nobody wants, and the same number describes both. A low one can mean efficient working capital management or imminent difficulty. The quick ratio narrows this a little by removing the least liquid item, and the inventory share tells you how much narrowing happened — but the judgement still needs the industry, the trend and the quality of the assets, none of which is a field here.

1. The default: 50,000 of current assets against 25,000 of liabilities, with 12,000 of inventory

   1. Current ratio: 50,000 ÷ 25,000 = 2.00
   2. Quick assets: 50,000 − 12,000 = 38,000
   3. Quick ratio: 38,000 ÷ 25,000 = 1.52
   4. Working capital: 50,000 − 25,000 = 25,000
   5. Inventory share: 12,000 ÷ 50,000 = 24 percent

   Read the first two together, because that is what the page is for. The current ratio of 2.00 says the company could pay its short-term debts twice over; the quick ratio of 1.52 says it could only do that once the inventory sells. Both statements are true at the same time and they are not equally reassuring, and the inventory share of 24 percent is the measurement of the distance between them.

2. A company with no inventory at all

   1. Current ratio: 40,000 ÷ 20,000 = 2.00
   2. Quick assets: 40,000 − 0 = 40,000
   3. Quick ratio: 40,000 ÷ 20,000 = 2.00
   4. Working capital: 40,000 − 20,000 = 20,000
   5. Inventory share: 0 ÷ 40,000 = 0 percent

   With nothing in inventory the two ratios are not close, they are identical — 2.00 and 2.00 — because the quick ratio is the same expression with a zero taken out of the numerator. A software company, an insurer or a consultancy can legitimately look like this, and the page accepts an empty inventory field rather than treating it as a missing answer. When the two ratios agree, there is nothing left to explain about the composition of the assets.

3. Current assets exactly equal to current liabilities

   1. Current ratio: 25,000 ÷ 25,000 = 1.00
   2. Quick assets: 25,000 − 9,000 = 16,000
   3. Quick ratio: 16,000 ÷ 25,000 = 0.64
   4. Working capital: 25,000 − 25,000 = 0.00

   This is the only run in which working capital prints as 0.00, and it is an answer rather than an empty field: the two piles are the same size. The current ratio of exactly 1.00 looks like the break-even point and it is, on this measure — but the quick ratio of 0.64 already says that 36 percent of the assets would have to be sold before the debts could be paid, which is the part the headline ratio conceals.

4. More liabilities than assets: a ratio below one

   1. Current ratio: 18,000 ÷ 24,000 = 0.75
   2. Quick assets: 18,000 − 6,000 = 12,000
   3. Quick ratio: 12,000 ÷ 24,000 = 0.50
   4. Working capital: 18,000 − 24,000 = −6,000

   A current ratio below one and a negative working capital are ordinary in businesses that collect cash from customers before they pay their suppliers. What makes this case legible is the direction of travel rather than the level: the quick ratio of 0.50 says only half the debts could be met without selling stock, so this company is relying on its inventory turning over on schedule. Whether that is a problem depends on how fast it turns, which is not a field on this page.

5. Awkward numbers: 87,500 against 32,000 with 31,000 of inventory

   1. Current ratio: 87,500 ÷ 32,000 = 2.734375, printed as 2.73
   2. Quick assets: 87,500 − 31,000 = 56,500
   3. Quick ratio: 56,500 ÷ 32,000 = 1.765625, printed as 1.77
   4. Working capital: 87,500 − 32,000 = 55,500

   Each ratio is rounded on its own rather than derived from the other, so dividing the printed current ratio by the printed quick ratio will not give exactly the inventory share. That is deliberate: every figure on the panel is the result of its own division, and reconstructing one from another is not a check that is meant to come out exact. The rounding difference here is under a hundredth of a ratio point.

The page sees a snapshot and a definition, and both have limits. It is a moment in time: a company whose receivables are all due next week and one whose receivables are all ninety days overdue have the same current assets, the same ratio and very different prospects. The categories themselves are accounting categories rather than liquidity categories, so a receivable that will not be collected and an inventory that will not sell sit in the numerator at full value, and nothing on this page can tell you how much of either is doubtful. Seasonality distorts it badly — a retailer measured just before a buying season and just after will show two ratios that describe the same healthy business. Off-balance-sheet obligations, the availability of an unused credit line and the company's actual payment terms are all invisible here, and any of them can matter more than the ratio. Above all, there is no threshold. The familiar claim that a current ratio of two is healthy cannot be traced to any authority, and treating it as a rule would misjudge an efficient retailer as risky and a struggling manufacturer as sound. The industry, the business model and the trend are what turn these numbers into a judgement, and the page supplies none of them.

What is a good current ratio?

There is no general answer, and the widely repeated figure of two to one cannot be traced to any standard-setting body or regulator. What counts as adequate depends on the industry and on the business model: a grocery chain turns its inventory into cash in days and can operate below one quite safely, while a manufacturer holding specialised parts for months may need well above it. The only useful comparisons are with the same company over time, which shows whether the position is tightening, and with close competitors, which supplies the context this page has no field for.

Why does the quick ratio take inventory out?

Because inventory is the least liquid item a company normally counts as a current asset. It is worth what it is worth on the books, but turning it into cash depends on someone buying it, at a price that may have to be discounted, within the period the debts are due. The quick ratio asks the stricter question: if none of the stock sold, could the company still pay what it owes within the year? The gap between the two ratios is a direct measure of how much of the cushion is goods rather than money.

Can working capital be negative?

Yes, and for many businesses it normally is. A negative figure means current liabilities exceed current assets, which sounds alarming but describes any company that is paid by its customers before it pays its suppliers — supermarkets, subscription businesses and many retailers run this way by design, and their negative working capital is a sign of bargaining power rather than of distress. It becomes a warning when it is caused by losses or by debts being called in rather than by the operating model, and the ratio alone cannot tell you which of the two you are looking at.

Why is the inventory share measured against current assets and not against liabilities?

Because it is not one of the three solvency figures — it is the explanation of the difference between two of them. Current ratio, quick ratio and working capital all put current liabilities underneath; the inventory share puts current assets underneath, so it answers a different question: how much of what the company owns in the short term is stock. That is exactly the amount by which the quick ratio falls short of the current ratio, expressed as a proportion, and it is why the fourth figure should not be added to or compared directly with the first three.

What if inventory is larger than current assets?

The page reports an error rather than a negative quick ratio. Inventory is part of current assets, so a figure larger than the total means the two numbers do not come from the same balance sheet — a common slip when the inventory figure is taken from a different period, or when a longer-term stock item has been entered instead. A negative quick ratio would be read as extreme illiquidity, which is the wrong diagnosis for what is actually a data problem, so the page says what is really wrong instead.

Does a high current ratio mean the company is in good shape?

Not by itself, and the failure mode is worth knowing about. A ratio can be high because a company holds a great deal of cash, which is safe but may also mean the capital is not being used; or because receivables have piled up from customers who are not paying; or because inventory is not selling. All three produce the same headline number and only the first is reassuring. This is the reason the quick ratio and the inventory share are on the same panel: they separate the three cases a single ratio merges.

How often should this be looked at?

At each set of published accounts, and alongside the same figures from the previous period, because the direction tells you more than the level. A ratio that has fallen from 2.0 to 1.4 over a year is a more useful signal than a ratio of 1.4 in isolation, and neither is interpretable without knowing what the business does and how its cash cycle works. For a private company the balance sheet date is worth checking too: a position measured at a seasonal low will look very different from the same business measured at its peak.

• Glossary: Current Assets — the definition of the numerator, including what is expected to be converted to cash within a year — Investor.gov, U.S. Securities and Exchange Commission (United States)
• Glossary: Current Liabilities — the definition of the denominator, including the portion of longer-term debt that falls due within the period — Investor.gov, U.S. Securities and Exchange Commission (United States)
• Glossary: Working Capital — the subtraction rather than the division, described as a measure of a company's ability to meet its short-term obligations — Investor.gov, U.S. Securities and Exchange Commission (United States)
• Glossary: Liquidity — what it means for an asset or a company to be liquid, which is the property the quick ratio is trying to isolate by removing inventory — Investor.gov, U.S. Securities and Exchange Commission (United States)