This Current Ratio Calculator accurately determines a company’s current ratio, current assets, current liabilities, or working capital based on the fundamental financial relationships. It helps assess short-term liquidity.
Welcome to the **Current Ratio Calculator**. The Current Ratio ($CR$) is a key liquidity ratio that measures a company’s ability to cover its short-term liabilities ($CL$) with its short-term assets ($CA$). It is one of the most fundamental metrics in financial analysis. This versatile tool allows you to input any three of the four related variables—Current Assets ($CA$), Current Liabilities ($CL$), Current Ratio ($CR$), or Working Capital ($W$)—to solve for the missing one.
Current Ratio Calculator
Current Ratio Formulas
The core relationships are $CR = CA / CL$ and $W = CA – CL$.
1. Solve for Current Ratio (CR):
$$ CR = \frac{CA}{CL} $$
2. Solve for Current Assets (CA):
$$ CA = CR \times CL $$
3. Solve for Current Liabilities (CL):
$$ CL = \frac{CA}{CR} $$
4. Solve for Working Capital (W):
$$ W = CA – CL $$
Formula Source: Investopedia – Current Ratio
Variables Explained
- CA – Current Assets: Assets expected to be converted to cash within one year (e.g., cash, receivables, inventory). (Currency)
- CL – Current Liabilities: Debts due within one year (e.g., payables, short-term debt). (Currency)
- CR – Current Ratio: The ratio of current assets to current liabilities. Expressed as “x times” (e.g., 2.0x). (Ratio)
- W – Working Capital: The difference between current assets and current liabilities ($CA – CL$). (Currency)
Related Calculators
What is the Current Ratio?
The Current Ratio is a liquidity measure that helps investors and creditors determine a company’s ability to pay off its short-term debts with its short-term assets. A higher current ratio generally indicates that the company is more capable of meeting its obligations.
A current ratio of 1.0x means the company has exactly enough current assets to cover its current liabilities. Analysts generally prefer a ratio between 1.5x and 3.0x, as a ratio too high might suggest the company is inefficiently managing its assets (e.g., too much cash sitting idle). A ratio below 1.0x indicates the company may have difficulty paying its short-term debts.
The formula is straightforward, but its interpretation requires context specific to the industry. For example, a grocery store might safely operate with a low current ratio because its inventory turns over very quickly.
How to Calculate Current Liabilities (Example)
A business has **Current Assets** ($CA$) of **$80,000**, and its desired **Current Ratio** ($CR$) is **1.5x**. What is the maximum **Current Liabilities** ($CL$) it can safely carry?
- Determine the Missing Variable: Current Liabilities ($CL$) is missing.
- Apply Formula: $$ CL = \frac{CA}{CR} $$
- Substitute Values: $CL = \frac{\$80,000}{1.5}$.
- Calculate: $CL = \$53,333.33$.
- Result: The maximum Current Liabilities is **$53,333.33**.
- Working Capital Check: $W = \$80,000 – \$53,333.33 = \$26,666.67$.
Frequently Asked Questions (FAQ)
The Quick Ratio (Acid-Test Ratio) is a more stringent measure of liquidity. It excludes inventory and prepaid expenses from current assets, as these are harder to quickly liquidate than cash or accounts receivable. Quick Ratio = $(CA – \text{Inventory}) / CL$.
What is considered a “good” Current Ratio?There is no single “good” ratio, but generally, a ratio between 1.5x and 3.0x is healthy. It primarily depends on the industry; capital-intensive industries often have lower ratios than service industries.
What does negative Working Capital (W) imply?Negative working capital ($W < 0$, meaning $CA < CL$) implies the company is relying on long-term assets or external financing to fund day-to-day operations. While bad for most businesses, it can be normal for efficient companies with minimal inventory and high sales volume (e.g., fast-food chains).
Can Current Liabilities (CL) be zero?No. For a typical operating business, Current Liabilities must be greater than zero. Mathematically, if $CL=0$ when calculating $CR$, it leads to division by zero, which is why we enforce $CL > 0$ in the calculator logic.