Current Ratio Calculator: Current Ratio & Working Capital

What the current ratio measures (and why it matters)

The current ratio is a classic balance-sheet liquidity metric used to estimate whether an organization can meet its short-term obligations using its short-term resources. It compares what you expect to convert into cash (or use to pay bills) within about a year to what you must pay within about a year.

Because lenders, investors, and internal finance teams often need a quick “can we pay what’s due soon?” snapshot, the current ratio is frequently a first-pass check. It’s sometimes called the working capital ratio because it relates closely to the concept of working capital (the dollar buffer between short-term assets and short-term liabilities).

What counts as current assets and current liabilities?

These totals typically come directly from the most recent balance sheet:

• Current assets: cash and cash equivalents, marketable securities, accounts receivable, inventory, prepaid expenses, and other assets expected to be used/converted within the operating cycle (often 12 months).
• Current liabilities: accounts payable, accrued expenses (wages, taxes), short-term debt/current portion of long-term debt, deferred revenue due within a year, and other obligations due within the operating cycle.

Formulas (with both MathML and plain text)

Plain-text formulas (useful if MathML doesn’t render in your browser):

• Current Ratio = Current Assets ÷ Current Liabilities
• Working Capital = Current Assets − Current Liabilities

Current ratio (MathML):

Working capital (MathML):

How to interpret your result

The current ratio is easy to compute but should be interpreted in context (industry norms, business model, and seasonality matter). As a general liquidity signal:

• Below 1.0: current liabilities exceed current assets. This can indicate tighter liquidity and potentially a greater reliance on continued cash inflows or external financing to pay near-term obligations.
• Around 1.0–2.0: often viewed as a “reasonable” range for many businesses, but it varies widely. Some businesses operate safely with lower ratios because they collect cash quickly and manage inventory tightly.
• Very high ratios (for example, well above 2.0–3.0): can signal strong liquidity, but may also indicate idle assets (excess cash, slow-moving inventory, or inefficient working capital management).

Working capital: the dollar perspective

Working capital converts the ratio into a dollar amount, which can be easier to plan around. Two companies may have the same ratio but very different working-capital cushions in dollars. A positive number indicates a buffer; a negative number suggests near-term obligations exceed near-term resources.

Worked example (step-by-step)

Suppose a company has:

• Current Assets = $250,000
• Current Liabilities = $150,000

Current Ratio = 250,000 ÷ 150,000 = 1.67

Working Capital = 250,000 − 150,000 = $100,000

Interpretation: the firm has $1.67 of current assets for each $1.00 of current liabilities and a $100,000 short-term cushion—often a comfortable position, assuming the current assets are truly liquid and collectible.

Scenario comparison table

This table shows how the same framework can imply different liquidity profiles:

Common pitfalls and best practices

• Inventory isn’t always “liquid.” Retailers and manufacturers may show high current assets due to inventory, but if that inventory is obsolete or slow-moving, the ratio can overstate true liquidity.
• Receivables quality matters. If customers pay late or bad debts rise, accounts receivable may not convert to cash on time.
• Seasonality can distort the snapshot. A single balance-sheet date can look very different from another month (e.g., pre-holiday inventory build).
• Compare like with like. Benchmarks differ by industry and by business model (subscription businesses vs. inventory-heavy businesses).
• Use complementary metrics. For a sharper liquidity view, compare with the quick ratio (excludes inventory) and cash conversion cycle/turnover metrics.

Limitations and assumptions (read before relying on the number)

• Accounting snapshot, not a cash forecast: The result is based on balance-sheet totals at a point in time; it does not model timing of cash inflows/outflows.
• “Current” typically assumes ~12 months (or operating cycle): Some businesses have operating cycles longer than a year; classification can differ.
• Asset liquidity varies: Inventory, prepaid expenses, and some receivables may not be readily convertible to cash at book value.
• Liability timing can be uneven: Two companies with the same total current liabilities may face very different near-term payment schedules.
• Industry norms differ: A “good” current ratio depends heavily on sector, bargaining power with suppliers, and access to credit.
• Zero or near-zero liabilities: If current liabilities are 0, the current ratio is undefined (division by zero). If liabilities are extremely small, the ratio can appear artificially large.
• Not financial advice: Use as a screening metric and validate with detailed cash flow analysis and professional guidance where appropriate.

How to use this calculator

1. Enter your balance-sheet totals for Current Assets and Current Liabilities (same currency units).
2. Click Calculate.
3. Review your Current Ratio and Working Capital, then interpret them using the guidance above and your industry context.