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).
Now put it against the rest of your numbers
You have today’s number. The Desk keeps it beside the rest of them — your margin, your price, and what it takes to hit the take-home you want. The same input always gives the same answer.