Current Ratio Calculator

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Category Financial Ratios

Current Assets ($)

Current Liabilities ($)

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About

The Current Ratio is the primary litmus test for a company's liquidity. It measures the ability to pay off short-term obligations (debts due within 12 months) using short-term assets (cash, inventory, receivables). Unlike the Quick Ratio, it includes inventory, making it suitable for retail and manufacturing sectors.

Auditors and creditors look for a "Goldilocks" zone. A ratio that is too low indicates a risk of insolvency or default. A ratio that is too high suggests inefficient use of capital, where excess cash is sitting idle instead of being reinvested or distributed to shareholders. This tool calculates the ratio and the absolute Working Capital simultaneously.

Formulas

Two key metrics are derived from Current Assets and Current Liabilities.

1. Current Ratio (CR):

CR = Current AssetsCurrent Liabilities

2. Net Working Capital (NWC):

NWC = Current Assets − Current Liabilities

Current Assets include Cash, Marketable Securities, Accounts Receivable, and Inventory.

Reference Data

Current Ratio	Interpretation	Auditor Action
< 1.0	Liquidity Crisis Risk	Check credit lines. Critical warning.
1.0 - 1.5	Adequate	Monitor closely. Common in Retail.
1.5 - 2.0	Healthy / Ideal	Standard target for most industries.
2.0 - 3.0	Strong	Low risk, high safety margin.
> 3.0	Inefficient	Excess idle cash or bloated inventory.

Frequently Asked Questions

Yes. A ratio above 3.0 or 4.0 often signals poor capital management. It implies the company is hoarding cash that loses value to inflation, or it has huge amounts of unsold inventory (overstocking) that might become obsolete.

The Ratio gives a relative efficiency score, but Working Capital gives the absolute dollar value available for operations. A small company and a giant corporation might both have a ratio of 2.0, but the corporation has millions in Working Capital to fund expansion, while the small company has very little.

The Quick Ratio (Acid Test) excludes Inventory from the assets. It is a stricter test of liquidity used for industries where inventory is hard to sell quickly. The Current Ratio is broader and more commonly used for general health checks.