Current Ratio Calculator
Measure company liquidity and ability to pay short-term debts with current assets
Calculate Current Ratio
Cash, inventory, accounts receivable, and other assets convertible to cash within one year
Accounts payable, short-term debt, and other obligations due within one year
Current Ratio Analysis
Working Capital
$0
Current Assets - Current Liabilities
Ratio Interpretation
Complete the inputs to perform financial analysis
Formula: Current Ratio = Current Assets ÷ Current Liabilities
Example: Mama's Burger Restaurant
Business Scenario
Current Assets: $40,000
Current Liabilities: $200,000
Current Ratio: 0.2
Working Capital: -$160,000
Analysis
Calculation: $40,000 ÷ $200,000 = 0.2
Result: Critical liquidity risk - ratio significantly below 1.0
Impact: Unlikely to get loan approval due to poor liquidity position
Current Ratio Benchmarks
Poor Liquidity
May struggle to pay debts
Potential insolvency risk
Adequate Liquidity
Generally acceptable range
Can meet obligations
Strong Liquidity
Excellent position
May indicate inefficiency
Industry Considerations
Retail: 1.0-1.5
Fast inventory turnover
Manufacturing: 1.5-3.0
Higher inventory requirements
Technology: 2.0-4.0
Cash-rich with lower liabilities
Current Assets Include
Cash and cash equivalents
Accounts receivable
Inventory
Marketable securities
Prepaid expenses
Current Liabilities Include
Accounts payable
Short-term debt
Accrued expenses
Notes payable (due within 1 year)
Current portion of long-term debt
Understanding Current Ratio
What is Current Ratio?
The current ratio, also known as the working capital ratio, is a liquidity ratio that measures a company's ability to pay short-term obligations or those due within one year. It compares a company's current assets to its current liabilities.
Why is it Important?
- •Measures short-term financial health
- •Indicates ability to pay debts
- •Used by lenders and investors
- •Helps assess operational efficiency
Formula Breakdown
Current Ratio = Current Assets ÷ Current Liabilities
Simple division formula
Interpretation Guidelines
- Below 1.0: May struggle to meet obligations
- 1.0 - 1.5: Generally adequate liquidity
- 1.5 - 2.5: Good liquidity position
- Above 3.0: Very strong, possibly inefficient
Note: Ideal ratios vary by industry and business model
Current Ratio vs. Quick Ratio
Current Ratio
Includes all current assets
- • Cash and equivalents
- • Accounts receivable
- • Inventory (included)
- • Prepaid expenses
Quick Ratio
Only most liquid assets
- • Cash and equivalents
- • Accounts receivable
- • Inventory (excluded)
- • Marketable securities