Current Ratio Calculator: Can Your Business Pay Its Bills?

Is a current ratio of 1.50 healthy?

On the defaults — $150,000.00 of current assets and $100,000.00 of current liabilities — the current ratio is 1.50, the working capital is $50,000.00, the current assets needed at the 1.50 bar are $150,000.00, and the most current liabilities the 1.50 bar allows are $100,000.00. The current ratio is current assets divided by current liabilities, both measured at the same date. Current assets are what the business can turn into cash within a year — cash, accounts receivable, inventory and short-term investments. Current liabilities are what it must pay within a year — accounts payable, short-term debt and accrued expenses. A ratio of 1.50 to 2.00 is generally considered healthy: the business holds $1.50 to $2.00 of short-term assets for every $1.00 of short-term bills. Below 1.00 the business owes more in the next year than it holds in short-term assets. Above 3.00 the business may be sitting on idle assets it could put to work. Lenders and suppliers watch the ratio before extending credit.

Four things about the model are worth stating plainly. First, the current ratio is the current assets divided by the current liabilities — $150,000.00 ÷ $100,000.00 = 1.50. Second, the working capital is the current assets minus the current liabilities — $150,000.00 − $100,000.00 = $50,000.00. Third, the current assets needed at the target are the target times the current liabilities — 1.50 × $100,000.00 = $150,000.00. And fourth, the most current liabilities allowed at the target are the current assets divided by the target — $150,000.00 ÷ 1.50 = $100,000.00; all listed in Accuracy & limitations.

The worked example, line by line

Setup: $150,000.00 of current assets, $100,000.00 of current liabilities, target ratio 1.50.

Line 1 — the current ratio. The current ratio is $150,000.00 ÷ $100,000.00 = 1.50.

Line 2 — the working capital. The working capital is $150,000.00 − $100,000.00 = $50,000.00.

Line 3 — the current assets needed. The current assets needed at the 1.50 bar are 1.50 × $100,000.00 = $150,000.00.

Line 4 — the most current liabilities allowed. The most current liabilities the 1.50 bar allows are $150,000.00 ÷ 1.50 = $100,000.00.

Line 5 — the cushion. The working capital left over after the short-term bills is $50,000.00 — the 0.50 of headroom the 1.50 ratio gives.

Line 6 — the check. 1.50 × $100,000.00 = $150,000.00, the current assets; and $150,000.00 − $100,000.00 = $50,000.00, the working capital.

Every branch, checked

Current assets $200,000: Current ratio 2.00; working capital $100,000.00; current assets needed at the 1.50 bar $150,000.00; most current liabilities allowed at the 1.50 bar $133,333.33 — With $200,000.00 of current assets the ratio rises to 2.00 — the business holds $2.00 of short-term assets for every $1.00 of short-term bills, and the working capital doubles to $100,000.00.

Current assets $120,000: Current ratio 1.20; working capital $20,000.00; current assets needed at the 1.50 bar $150,000.00; most current liabilities allowed at the 1.50 bar $80,000.00 — With $120,000.00 of current assets the ratio falls to 1.20 — still above 1.00, so the bills are covered, but below the 1.50–2.00 range most lenders and suppliers like to see.

Current liabilities $75,000: Current ratio 2.00; working capital $75,000.00; current assets needed at the 1.50 bar $112,500.00; most current liabilities allowed at the 1.50 bar $100,000.00 — Cutting the current liabilities to $75,000.00 lifts the ratio to 2.00 — the same ratio as the $200,000.00 assets branch, because the assets-to-liabilities proportion is the same.

Current liabilities $150,000: Current ratio 1.00; working capital $0.00; current assets needed at the 1.50 bar $225,000.00; most current liabilities allowed at the 1.50 bar $100,000.00 — With current liabilities of $150,000.00 the ratio is exactly 1.00 — the business exactly covers its short-term bills, with nothing left over, and the working capital is $0.00.

Current assets $300,000, current liabilities $150,000: Current ratio 2.00; working capital $150,000.00; current assets needed at the 1.50 bar $225,000.00; most current liabilities allowed at the 1.50 bar $200,000.00 — A bigger business with $300,000.00 of assets and $150,000.00 of liabilities also sits at 2.00 — the same ratio as the $200,000.00 branch, because the assets and the liabilities both rose by the same proportion.

Current assets $90,000: Current ratio 0.90; working capital $−10,000.00; current assets needed at the 1.50 bar $150,000.00; most current liabilities allowed at the 1.50 bar $60,000.00 — With $90,000.00 of current assets the ratio is 0.90 — below 1.00, so the business owes more in the next year than it holds in short-term assets, and the working capital is $−10,000.00.

Current liabilities $50,000: Current ratio 3.00; working capital $100,000.00; current assets needed at the 1.50 bar $75,000.00; most current liabilities allowed at the 1.50 bar $100,000.00 — With current liabilities of only $50,000.00 the ratio is 3.00 — high, and possibly a sign of idle assets the business could put to work, with working capital of $100,000.00.

The reverses, worked backwards

Smallest whole-dollar current assets for the ratio to reach 1.50: At the displayed $150,000 the figures are Current ratio 1.50; working capital $50,000.00; current assets needed at the 1.50 bar $150,000.00; most current liabilities allowed at the 1.50 bar $100,000.00. At the displayed $150,000 the current ratio is 1.50. At $149,999 the unrounded ratio is 1.499990 — it shows as 1.50 only after rounding, and it is still below the 1.50 line, so $150,000 is the smallest whole-dollar current assets that reaches the bar.

Smallest whole-dollar current assets for the ratio to reach 2.00: At the displayed $200,000 the figures are Current ratio 2.00; working capital $100,000.00; current assets needed at the 2.00 bar $200,000.00; most current liabilities allowed at the 2.00 bar $100,000.00. At the displayed $200,000 the current ratio is 2.00. At $199,999 the unrounded ratio is 1.999990 — it shows as 2.00 only after rounding, and it is still below the 2.00 line, so $200,000 is the smallest whole-dollar current assets that reaches 2.00.

Largest whole-dollar current liabilities for the ratio to STAY at or above 1.50: At the displayed $100,000 the figures are Current ratio 1.50; working capital $50,000.00; current assets needed at the 1.50 bar $150,000.00; most current liabilities allowed at the 1.50 bar $100,000.00. At the displayed $100,000 the current ratio is 1.50. At $100,001 the unrounded ratio is 1.499985 — it shows as 1.50 only after rounding, and it is still below the 1.50 line, so $100,000 is the largest whole-dollar current liabilities for the ratio to stay at or above the bar.

Smallest whole-dollar current assets for the ratio to reach 1.00: At the displayed $100,000 the figures are Current ratio 1.00; working capital $0.00; current assets needed at the 1.00 bar $100,000.00; most current liabilities allowed at the 1.00 bar $100,000.00. At the displayed $100,000 the current ratio is 1.00. At $99,999 the unrounded ratio is 0.999990 — it shows as 1.00 only after rounding, and it is still below the 1.00 line, so $100,000 is the smallest whole-dollar current assets that covers the bills at all.

Smallest whole-dollar current assets for the ratio to reach 1.25: At the displayed $125,000 the figures are Current ratio 1.25; working capital $25,000.00; current assets needed at the 1.25 bar $125,000.00; most current liabilities allowed at the 1.25 bar $100,000.00. At the displayed $125,000 the current ratio is 1.25. At $124,999 the unrounded ratio is 1.249990 — it shows as 1.25 only after rounding, and it is still below the 1.25 line, so $125,000 is the smallest whole-dollar current assets that reaches 1.25.

Largest whole-dollar current liabilities for the ratio to STAY at or above 2.00: At the displayed $75,000 the figures are Current ratio 2.00; working capital $75,000.00; current assets needed at the 2.00 bar $150,000.00; most current liabilities allowed at the 2.00 bar $75,000.00. At the displayed $75,000 the current ratio is 2.00. At $75,001 the unrounded ratio is 1.999973 — it shows as 2.00 only after rounding, and it is still below the 2.00 line, so $75,000 is the largest whole-dollar current liabilities for the ratio to stay at or above 2.00.

A warning about the neighbours: every neighbour above shows as the target when rounded to two decimals, but its unrounded ratio is short of the target. A lender underwriting on the unrounded ratio would still say no. The page prints the unrounded neighbour value in full so the rounding does not mislead you.

What the defaults assume

The defaults are $150,000.00 of current assets, $100,000.00 of current liabilities and a target ratio of 1.50 — Current ratio 1.50; working capital $50,000.00; current assets needed at the 1.50 bar $150,000.00; most current liabilities allowed at the 1.50 bar $100,000.00. With Current assets $200,000, Current ratio 2.00; working capital $100,000.00; current assets needed at the 1.50 bar $150,000.00; most current liabilities allowed at the 1.50 bar $133,333.33. With Current assets $120,000, Current ratio 1.20; working capital $20,000.00; current assets needed at the 1.50 bar $150,000.00; most current liabilities allowed at the 1.50 bar $80,000.00. With Current liabilities $75,000, Current ratio 2.00; working capital $75,000.00; current assets needed at the 1.50 bar $112,500.00; most current liabilities allowed at the 1.50 bar $100,000.00. With Current liabilities $150,000, Current ratio 1.00; working capital $0.00; current assets needed at the 1.50 bar $225,000.00; most current liabilities allowed at the 1.50 bar $100,000.00. With Current assets $300,000, current liabilities $150,000, Current ratio 2.00; working capital $150,000.00; current assets needed at the 1.50 bar $225,000.00; most current liabilities allowed at the 1.50 bar $200,000.00. With Current assets $90,000, Current ratio 0.90; working capital $−10,000.00; current assets needed at the 1.50 bar $150,000.00; most current liabilities allowed at the 1.50 bar $60,000.00. With Current liabilities $50,000, Current ratio 3.00; working capital $100,000.00; current assets needed at the 1.50 bar $75,000.00; most current liabilities allowed at the 1.50 bar $100,000.00. With Current assets $0, Current ratio 0.00; working capital $−100,000.00; current assets needed at the 1.50 bar $150,000.00; most current liabilities allowed at the 1.50 bar $0.00. With Current liabilities $0, Current ratio — (undefined: no short-term bills to cover); working capital $150,000.00; current assets needed at the 1.50 bar $0.00; most current liabilities allowed at the 1.50 bar $100,000.00 — the ratio cannot be computed, never Infinity or NaN. With Current assets $250,000, current liabilities $100,000, Current ratio 2.50; working capital $150,000.00; current assets needed at the 1.50 bar $150,000.00; most current liabilities allowed at the 1.50 bar $166,666.67. With Current assets $62,500, current liabilities $100,000, Current ratio 0.63; working capital $−37,500.00; current assets needed at the 1.50 bar $150,000.00; most current liabilities allowed at the 1.50 bar $41,666.67 — the unrounded ratio is 0.625000, which rounds half-up to 0.63. With Current assets $100,000, current liabilities $33,333, Current ratio 3.00; working capital $66,667.00; current assets needed at the 1.50 bar $49,999.50; most current liabilities allowed at the 1.50 bar $66,666.67 — the unrounded ratio is 3.000030, which rounds to 3.00. With Current assets $123,456, current liabilities $98,765, Current ratio 1.25; working capital $24,691.00; current assets needed at the 1.50 bar $148,147.50; most current liabilities allowed at the 1.50 bar $82,304.00 — the unrounded ratio is 1.249997, shown as 1.25, just under the 1.25 line. With Target bars — current assets $150,000, current liabilities $100,000, Current assets needed at the 1.50 bar $150,000.00; at the 2.00 bar $200,000.00; most current liabilities allowed at the 1.50 bar $100,000.00; at the 2.00 bar $75,000.00.

Output · formula · meaning

Who uses this

• The small-business owner checking the year-end balance sheet: they learn $150,000.00 of current assets over $100,000.00 of current liabilities is a current ratio of 1.50 — and they check the $150,000 reverse to see the smallest assets that reach the bar.
• The supplier deciding whether to extend 30-day terms: they learn a ratio of 1.50 to 2.00 is generally considered healthy — and they check the $100,000 reverse to see the largest liabilities that stay at or above the bar.
• The owner whose ratio slipped to 0.90: they learn the business owes more in the next year than it holds in short-term assets — and they check the $100,000 reverse to see the assets that would bring it back to 1.00.
• The founder with a 3.00 ratio: they learn the business may be sitting on idle assets — and they check the $75,000 reverse to see the largest liabilities that keep the ratio at or above 2.00.

Accuracy & limitations

The math is first-principles: the current ratio is the current assets divided by the current liabilities, rounded to two decimals half-up; the working capital is the current assets minus the current liabilities, rounded to cents half-up; the current assets needed at the bar are the bar times the current liabilities; the most current liabilities allowed at the bar are the current assets divided by the bar. The reverses are judged on the UNROUNDED ratio: a neighbour one dollar short shows as the target when rounded to two decimals, but its unrounded ratio is below the target, so it does not meet the bar — the page prints the unrounded neighbour value in full. What the model cannot do is judge the business: current assets are what the business can turn into cash within a year — cash, accounts receivable, inventory and short-term investments — and a lender or supplier will check how much of the inventory really sells and how much of the receivables really gets paid; the 1.50–2.00 bar is the usual range, not a rule, and some industries run happily below it; and the ratio says nothing about the long-term debt, the cash flow, or whether the business is profitable. Use it to see whether the short-term bills are covered — then read the rest of the balance sheet.

Frequently asked questions