Current Ratio & Quick Ratio Calculator
Three liquidity measures from your balance sheet: current ratio, quick ratio and working capital. These are the numbers a lender checks first when you apply for credit.
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If your liquidity ratios are about to be seen by a lender, it's worth knowing what they'll say before they say it. Book a free 30-minute call with an Ex-PwC Chartered Accountant.
Book Your Free 30-Min Call →The Three Measures
Current Ratio = Current Assets ÷ Current LiabilitiesQuick Ratio = (Current Assets − Inventory − Prepaid) ÷ Current LiabilitiesWorking Capital = Current Assets − Current Liabilities
The current ratio asks whether you could cover the next twelve months of obligations with the assets you expect to convert to cash in that period. The quick ratio — the acid test — asks the same question but refuses to count inventory or prepayments, on the grounds that inventory may not sell quickly and prepaid expenses cannot be turned into cash at all.
Working capital expresses the same relationship as a dollar amount rather than a ratio, which is often more useful for planning: it is the cash cushion the business is operating with.
What Lenders Want to See
- Below 1.0 — current liabilities exceed current assets. Most lenders treat this as a serious concern and many loan covenants prohibit it outright.
- 1.0 to 1.5 — workable but tight. Little room for a large customer paying late.
- 1.5 to 3.0 — the range most lenders are comfortable with.
- Above 3.0 — technically safe, but often a sign that capital is sitting idle in slow receivables, excess inventory or uninvested cash.
A quick ratio near 1.0 is generally considered healthy. If your current ratio looks fine but your quick ratio is well below it, the gap is inventory — and the question becomes how fast that inventory actually moves. Our inventory turnover calculator answers that.
A Healthy Ratio Is Not the Same as Having Cash
These ratios are balance-sheet snapshots and they can look reassuring while your bank account is empty. A business with $300,000 of receivables and $50,000 of payables shows an excellent current ratio, but if those receivables are 90 days overdue it may not be able to make payroll on Friday. The ratio tells you what you are owed; it does not tell you when it arrives.
Always read these alongside a cash flow forecast and your receivables turnover. Ratios describe structure; only cash flow describes survival.
Frequently Asked Questions
What is a good current ratio?
Most lenders look for between 1.5 and 3.0. Below 1.0 signals difficulty meeting short-term obligations; well above 3.0 often means capital is idle rather than working. Acceptable ranges do vary by industry.
What's the difference between current ratio and quick ratio?
The quick ratio excludes inventory and prepaid expenses because neither converts to cash reliably or quickly. It is the more conservative test, and the gap between the two ratios tells you how dependent your liquidity is on selling stock.
Can working capital be negative?
Yes. It means current liabilities exceed current assets. Some businesses operate this way deliberately — supermarkets collect from customers instantly and pay suppliers in 60 days — but for most businesses it signals strain.
How often should I check these?
Monthly, as part of your close. Ratios calculated once a year at filing tell you what happened, not what is happening. They also move quickly when a large invoice is raised or a loan is drawn.