Current ratio calculator: current ratio, quick ratio and working capital
Enter your cash, receivables, inventory and current liabilities and see your current ratio, quick ratio and working capital straight away.
Short answer
Current ratio = current assets ÷ current liabilities. Quick ratio = (current assets − inventory) ÷ current liabilities. With 250,000 of current assets, of which 70,000 is inventory, and 160,000 of current liabilities, the current ratio is 1.56 and the quick ratio 1.13. Above 1, the business can pay its short-term debts from assets that turn into cash within a year.
Current ratio calculator
All figures are on the balance sheet, on the same date. Any currency works.
- Working capital
- 90,000
- Quick ratio (acid test)
- 1.13
- Current ratio
- 1.56
Liquidity formulas
| Ratio | Formula | Example |
|---|---|---|
| Current ratio | current assets ÷ current liabilities | 250,000 ÷ 160,000 = 1.56 |
| Quick ratio (acid test) | (current assets − inventory) ÷ current liabilities | 180,000 ÷ 160,000 = 1.13 |
| Cash ratio | cash ÷ current liabilities | 40,000 ÷ 160,000 = 0.25 |
| Working capital | current assets − current liabilities | 250,000 − 160,000 = 90,000 |
Current assets turn into cash within a year: cash at bank, trade receivables, other receivables and inventory. Current liabilities fall due within a year: suppliers, VAT, payroll taxes, the part of a loan repaid this year and an overdraft.
The quick ratio leaves out inventory because it is the slowest to become cash: you have to sell it first and then wait to be paid. For a construction or installation business, work in progress belongs with inventory for the same reason.
What is a good current ratio?
| Ratio | Rule of thumb |
|---|---|
| Current ratio | Below 1 tight, 1 to 1.5 adequate, from 1.5 comfortable |
| Quick ratio | From 1 you can pay current liabilities without selling stock |
| Working capital | Positive; how much you need depends on revenue and payment terms |
These are rules of thumb, not standards. A supermarket that sells for cash and pays suppliers after 60 days can live with a current ratio below 1. A wholesaler that waits 90 days for its customers needs more. A very high ratio is not automatically good either: idle cash or a large stock earns little.
Worked example: an installation company
A fictional installation company has these current assets and liabilities at year end.
| Item | Amount |
|---|---|
| Cash at bank | 40,000 |
| Trade receivables | 140,000 |
| Inventory and work in progress | 70,000 |
| Current assets | 250,000 |
| Suppliers, VAT and payroll taxes | 160,000 |
| Current ratio | 250,000 ÷ 160,000 = 1.56 |
| Quick ratio | 180,000 ÷ 160,000 = 1.13 |
| Working capital | 90,000 |
On paper the company is liquid. But if a large customer owing 60,000 only pays in three months, the quick ratio meanwhile falls to (180,000 − 60,000) ÷ 160,000 = 0.75. A ratio on one date does not tell the whole story; for the weeks ahead you need a cash flow forecast.
How to improve liquidity
- Invoice and collect faster. Invoice on completion, send reminders on fixed days and call about large overdue amounts. More in improving accounts receivable.
- Ask for stage payments or a deposit. On projects that run for months, a payment schedule keeps working capital up.
- Hold less stock. Order smaller and more often, and clear slow-moving stock.
- Turn short-term debt into long-term debt. An investment paid from the overdraft drags liquidity down; a loan whose term matches the investment does not.
Getting the figures from your accounts
Every figure is on the balance sheet, for example the balance sheet report in Xero or QuickBooks Online. Take them on the same date, and check that the latest VAT return and payroll are posted; otherwise your liabilities look lower than they are.
Want to see liquidity every day? Connect Xero, QuickBooks Online or Exact Online to DigiData and let the AI agent build a financial dashboard with liquidity, receivables and solvency side by side.
Frequently asked questions
What is the difference between the current ratio and the quick ratio?
The current ratio counts all current assets; the quick ratio leaves out inventory. The quick ratio is therefore stricter: it shows whether you can pay your current liabilities without selling stock first.
Is a current ratio below 1 always bad?
No. Businesses that are paid in cash or by card and pay their suppliers later, such as supermarkets and restaurants, often run below 1 without payment problems. For a business that waits a long time for its customers, it is a warning sign.
What is the difference between liquidity and solvency?
Liquidity is about the short term: can you pay the bills of the coming months? Solvency is about the long term: how much of what you own is paid for with your own money? A business can be solvent and still short of cash.
How often should I calculate liquidity?
Monthly is a sensible minimum. If cash is tight, look weekly at expected receipts and payments in a cash flow forecast: it shows when cash will run short, not just whether it is short now.
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