What this calculator does
The three liquidity ratios ask the same question with progressively stricter definitions of what counts as available. The current ratio counts everything short term, the quick ratio strips out inventory and prepayments, and the cash ratio counts only cash.
The gap between them is the interesting part. A business with a healthy current ratio of 1.50 but a cash ratio of only 0.27 is relying on selling inventory and collecting receivables to meet its obligations, which is fine until it suddenly is not.
The formula
Each ratio divides a different subset of current assets by current liabilities. The current ratio uses all of them, the quick ratio removes inventory and prepaid expenses, and the cash ratio uses cash and equivalents alone.
| Term | Meaning |
|---|---|
| Current ratio | Current assets divided by current liabilities. Above 1 means short-term assets cover short-term debts. |
| Quick ratio | Also called the acid test. Excludes inventory, which may not convert to cash quickly. |
| Cash ratio | The strictest measure, counting only cash and equivalents. |
The inputs explained
| Field | What to enter |
|---|---|
| Current assets ($) | Total current assets from the balance sheet. |
| Inventory ($) | Inventory, which the quick ratio excludes. |
| Prepaid expenses ($) | Prepaid expenses, also excluded from the quick ratio. |
| Cash & equivalents ($) | Cash and cash equivalents. |
| Current liabilities ($) | Total current liabilities, meaning obligations due within a year. |
When to use it
Assessing a supplier or customer
Weak liquidity is an early warning that a counterparty may struggle to pay or deliver.
Preparing for a lending conversation
Lenders look at these ratios directly, and knowing them in advance avoids surprises.
Monitoring your own position
Tracking the gap between current and cash ratios shows how dependent the business is on stock moving.
Worked examples
Every figure in the tables below is produced by this page’s own calculator at build time, so the numbers and the tool always agree. Select any row to load that scenario.
How do the three ratios move together?
The same business at three levels of current assets.
Questions
What is a good current ratio?
Convention suggests somewhere between 1.5 and 3, but it varies enormously by industry. Supermarkets operate well below 1 because they collect cash instantly and pay suppliers later. Compare against similar businesses rather than a universal target.
Can a ratio be too high?
Yes. A current ratio well above 3 often means cash sitting idle or inventory not shifting, both of which represent capital that could be working harder elsewhere.
Why exclude inventory from the quick ratio?
Because inventory is the hardest current asset to turn into cash quickly, and in a genuine crunch it often sells only at a discount. The quick ratio asks what could be met without relying on it.
Which ratio matters most?
It depends on the question. Lenders often focus on the current ratio, while anyone worried about an imminent squeeze looks at the cash ratio. Reading all three together is more informative than any one alone.
For the absolute buffer rather than the ratio, see the working capital calculator. For debt levels and interest cover, see the leverage ratios calculator.