Canonical formula calculator
CURRENT RATIO
Whether you have enough short-term assets to cover your short-term obligations — the most basic liquidity test.
Worked example
How the number is worked out
The same builder, asking the same question as a ratio instead of a total.
Starting from
Working
A dollar sixty-five of short-term assets for every dollar owed. The ratio survives comparison between businesses of different sizes in a way the raw $33,000 does not.
What this tells you
Current ratio compares short-term assets (cash, receivables, inventory) to short-term liabilities (payables, short-term debt, near-term obligations). A ratio above 1.5 is generally healthy. Between 1.0 and 1.5 is okay but tight. Below 1.0 means you might not be able to pay near-term bills without raising cash or selling assets.
When to use it
Calculate current ratio at month-end or quarter-end. Watch the trend. A declining current ratio is an early warning sign that working capital is deteriorating. Banks, lenders, and sophisticated suppliers will calculate this for you when evaluating credit risk — better to know your own number first.
What it doesn’t tell you
Current ratio treats all current assets equally, but inventory is much less liquid than cash. A 2.0 ratio dominated by stale inventory is far weaker than a 1.5 ratio dominated by cash and receivables. For a stricter test, calculate the quick ratio (current ratio without inventory).
Reckon it, don’t just calc it
A calculator gives you today’s number. Reckon takes your plan to make your own money and checks it against what’s real — your margin, your price, what it takes to hit the take-home you want. No AI, no guessing — the same input always gives the same answer.