What is a good current ratio?

Often 1.2 to 2 is considered healthy, but it depends on the industry and how quickly the business turns inventory and receivables into cash.

What does a current ratio below 1 mean?

Current liabilities are larger than current assets, so the business may need new financing or faster collections to pay its bills.

How is the current ratio different from the quick ratio?

The quick ratio leaves out inventory and prepaid expenses, counting only assets that can be turned into cash quickly.

Current Ratio Formula and Calculator

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Current Ratio Calculator

The current ratio compares everything a business expects to turn into cash within a year (current assets) with everything it must pay within a year (current liabilities). It is the most common liquidity ratio and the first thing lenders and suppliers look at to judge whether a company can meet its short-term obligations.

Formula

Current ratio = Current assetsCurrent liabilities

Where

Current assets: cash, marketable securities, receivables, inventory and other assets expected to turn into cash within a year
Current liabilities: obligations due within a year: payables, short-term debt, accrued expenses

Calculator

Current assets

Current liabilities

Result and step-by-step solution

Current ratio

The business holds 2.00 of current assets for every 1.00 due within a year. Net working capital: 125,000.00.

Divide
250,000.00125,000.00 = 2

How to use the formula

Current assets include cash, marketable securities, accounts receivable, inventory and prepaid expenses. Current liabilities include accounts payable, short-term borrowings, the current portion of long-term debt, and accrued wages and taxes. Both figures come straight from the balance sheet.

With 250,000 of current assets and 125,000 of current liabilities, the current ratio is 2.0, and net working capital is 125,000. A ratio below 1 means current liabilities exceed current assets, which can be risky, although supermarkets and restaurants that collect cash immediately often run below 1 safely. A very high ratio can mean idle cash or slow-moving stock. Because inventory is not always easy to sell, analysts also check the stricter quick ratio and cash ratio.

Frequently asked questions

What is the current ratio formula?: Current ratio = current assets ÷ current liabilities.
What is a good current ratio?: Often 1.2 to 2 is considered healthy, but it depends on the industry and how quickly the business turns inventory and receivables into cash.
What does a current ratio below 1 mean?: Current liabilities are larger than current assets, so the business may need new financing or faster collections to pay its bills.
How is the current ratio different from the quick ratio?: The quick ratio leaves out inventory and prepaid expenses, counting only assets that can be turned into cash quickly.

Last reviewed: September 26, 2026. Calculations run in your browser and were checked against numpy-financial, SciPy and published spreadsheet examples.