Current ratio calculator

Current assets are cash, receivables, inventory and anything else expected to become cash inside a year. Current liabilities are payables, short term debt and the part of long term debt due inside the year. Everything with a longer horizon is excluded from both.

That twelve month line is the entire definition, and it is what makes the ratio about survival rather than about profit. A business can be highly profitable and still fail a current ratio test if the profit is locked up in things that will not turn into cash soon enough.

A ratio of 1.5 says there is 1.5 of near cash for every 1 of near term bills. A ratio of 0.8, from $80,000 of assets against the same $100,000 of bills, says the opposite: the bills due this year exceed the assets available to pay them.

Below 1 is not automatically a crisis, because timing matters as much as totals, and a business that collects faster than it pays can run there permanently. Above 3 is not automatically healthy either; it can mean cash sitting idle. The ratio raises the question rather than answering it.

Inventory counts as a current asset and it is the least reliable of them, because selling it takes time and may take a discount. Stripping it out gives the quick ratio, which is the same test on the assets that convert fastest.

The business ratios calculator computes both, and the cash ratio calculator takes the strictest version of all: cash alone against the bills.

The same two numbers, subtracted rather than divided, give working capital, which is an amount rather than a multiple. The ratio compares across businesses of different sizes; the amount says how much cushion there actually is. Working capital against current ratio sets out when each reads better. This is educational material, not financial advice.