Current Ratio Calculator

How it is calculated

The current ratio tests whether a business can cover its short-term debts: current ratio = current assets ÷ current liabilities. Current assets are cash, receivables, inventory and other items expected to turn into cash within a year; current liabilities are the obligations due within the same period. Both go in the same currency. Liabilities must be above zero and assets cannot be negative. The tool also shows working capital = assets − liabilities, and labels the ratio: 2.00 or more is "Strong", 1.00 to just under 2.00 is "Healthy", below 1.00 is "Weak". These bands are simple rules of thumb; acceptable levels differ by industry.

Common mistakes

• Including long-term assets or debts. Only items due or convertible within about a year belong here; a building or a 10-year loan does not.
• Reading a high ratio as always good. A very high value can mean idle cash or slow-selling inventory.
• Swapping the two inputs. Putting liabilities in the assets box gives the inverse, so 0.67 instead of 1.50.
• Counting slow inventory at full value. Stock that is hard to sell inflates assets, so the quick ratio may tell a harsher story.
• Comparing across industries. A ratio that is normal for a retailer may be poor for a software firm.