Liquidity Ratio Calculator
Current, quick, and cash ratios plus working capital from one balance sheet snapshot.
What it does
Liquidity ratios answer a narrow question: can a business pay the bills that come due within a year? The balance sheet holds the raw material. Current assets are the resources expected to turn into cash inside that window, and current liabilities are the obligations due in the same period. Comparing the two gives a quick read on short-term financial room.
The current ratio is the broadest measure. Divide total current assets by current liabilities. A result of 2.00 means the company has two dollars of current assets for every dollar of current liabilities. That sounds strong, but the assets may include inventory that is hard to sell or receivables that customers are slow to pay.
The quick ratio, also called the acid-test ratio, removes inventory and prepaid expenses. It keeps cash, short-term investments, and receivables. That makes it a stricter test of whether the company could meet obligations without depending on a warehouse of goods. A quick ratio of 1.00 or better is often treated as comfortable, though the right level depends on the industry.
The cash ratio is stricter still. It divides cash plus short-term investments by current liabilities and ignores receivables entirely. A low cash ratio is not automatically a problem, because most firms do not keep enough cash on hand to repay every short-term obligation at once. It is most useful as a stress measure or for firms with unpredictable receipts.
Working capital puts the same comparison in dollars instead of a ratio. Current assets minus current liabilities shows the cushion available to fund day-to-day operations. Negative working capital can be normal for a subscription business that collects cash before it delivers, and alarming for a manufacturer with slow inventory.
How to use
- Enter total current assets from the balance sheet.
- Enter the inventory portion, which the quick ratio removes.
- Enter cash and short-term investments.
- Enter accounts receivable, meaning trade receivables expected within a year.
- Enter total current liabilities.
- Read the three ratios and the working capital figure together, then compare them with prior periods and industry peers.
Formula
- Current assets
- Cash, investments, receivables, inventory, and prepaid costs expected to convert to cash within a year.
- Inventory
- Goods held for sale or production, in dollars. Removed from the quick and cash ratios.
- Cash and STI
- Cash plus short-term marketable investments, in dollars.
- Receivables
- Accounts receivable expected to be collected within a year, in dollars.
- Current liabilities
- Obligations due within a year, such as payables, accrued costs, and the current portion of debt.
The quick ratio here uses the CFA Institute definition: cash, short-term marketable investments, and receivables, divided by current liabilities. Some texts also subtract prepaid expenses from current assets instead of listing quick assets directly; the result is the same when prepaids are the only other current asset. The cash ratio excludes receivables by design. A current ratio below 1 means current liabilities exceed current assets, which is a warning sign but not proof of distress.
Worked example
Example: current assets $500,000, current liabilities $250,000
Current assets $500,000, inventory $120,000, cash and short-term investments $150,000, receivables $180,000, current liabilities $250,000.
- Current ratio: $500,000 / $250,000 = 2.00.
- Quick assets: $150,000 + $180,000 = $330,000, because inventory stays out.
- Quick ratio: $330,000 / $250,000 = 1.32.
- Cash ratio: $150,000 / $250,000 = 0.60.
- Working capital: $500,000 - $250,000 = $250,000.00.
- The company holds two dollars of current assets per dollar of current liabilities, and its quick assets still cover short-term debt 1.32 times.
Reference table
| Ratio | Formula | What it ignores | Typical read |
|---|---|---|---|
| Current | Current assets / current liabilities | Nothing on the current balance sheet | Below 1 needs a closer look |
| Quick | (Cash + STI + receivables) / current liabilities | Inventory and prepaid costs | 1.0 or better is often comfortable |
| Cash | (Cash + STI) / current liabilities | Inventory and receivables | Stress test, not a target |
| Working capital | Current assets - current liabilities | Scale and industry norms | Positive means a cushion |
Limits
- Uses one balance sheet date; seasonal firms can look very different a few months later.
- Ratios say nothing about the quality of receivables or how quickly inventory actually sells.
- Industry norms vary widely, so a low ratio can be normal for a grocery chain and high for a equipment maker.
- Working capital is a dollar amount, so it is not comparable across companies of different size.
Common mistakes
- Leaving inventory in the quick ratio, which turns it back into the current ratio.
- Counting restricted cash or long-term investments as cash.
- Comparing a retailer with a software firm without adjusting for how each collects cash.
- Reading a current ratio above 2 as proof of health while receivables age past 90 days.
- Using year-end figures for a seasonal business that builds inventory before a peak season.
Try it yourself
Quick checks. Answers sit tucked under each question.
Current assets $200,000, inventory $50,000, cash and STI $30,000, receivables $60,000, current liabilities $100,000?
Current ratio 2.00, quick ratio 0.90, cash ratio 0.30, working capital $100,000.00.
Current assets $80,000, inventory $20,000, cash and STI $10,000, receivables $25,000, current liabilities $100,000?
Current ratio 0.80, quick ratio 0.35, cash ratio 0.10, working capital -$20,000.00.
Current assets $150,000, no inventory, cash and STI $90,000, receivables $60,000, current liabilities $75,000?
Current ratio 2.00, quick ratio 2.00, cash ratio 1.20, working capital $75,000.00.
Questions
What is a good current ratio?
There is no single number. Many healthy firms sit between 1.0 and 2.0, but capital-light businesses often run lower and inventory-heavy businesses higher.
Why is the quick ratio lower than the current ratio?
It removes inventory and prepaid costs, which are current assets but not quickly convertible to cash.
Should I use the cash ratio or the quick ratio?
Use the quick ratio for routine coverage and the cash ratio for a stress test, since the cash ratio ignores money owed by customers.
Can working capital be negative and still be fine?
Yes. Businesses that collect from customers before paying suppliers, such as some subscription and retail models, often run negative working capital.
Which current liabilities belong in the denominator?
Short-term borrowings, accounts payable, accrued expenses, taxes payable, and the portion of long-term debt due within a year.
Do these ratios use average or ending balances?
This page uses the balances you enter. Analysts often average the start and end of the period to smooth seasonal swings.
Sources
- CFA Institute: financial ratio list with current, quick, and cash ratio definitions
- Harvard Business School Online: liquidity ratios explained