Current ratio
Check your short-term financial health: do you have enough current assets to cover current liabilities?
Current ratio
Check your short-term financial health: do you have enough current assets to cover current liabilities?
This is a quick health check: can you cover what you owe in the next year with what you can turn into cash in the next year? It’s one of the first things a bank or accountant looks at to judge how financially stable a business is.
It can help you answer questions like:
- Could I cover my bills if things got tight for a few months?
- Am I relying too much on short-term debt?
- Is my financial position improving or getting worse over time?
What you’ll need to enter:
- Current assets — cash, money owed to you by customers, and any stock you’d sell within the next year. (Example: $80,000.)
- Current liabilities — what you owe within the next year: supplier bills, short-term loans, upcoming tax. (Example: $40,000.)
Both figures should be on your most recent balance sheet — your bookkeeper can point you to them if you’re not sure.
How it works
We simply divide your current assets by your current liabilities.
What the result tells you
With the example numbers, your ratio is 2.0, which is considered strong — you have twice as much coming in as you owe in the short term. A ratio below 1 means your short-term bills are bigger than what you can quickly turn into cash, which is worth addressing.
A few ways to improve this number if it’s lower than you’d like:
- Chase up what’s owed to you. Unpaid invoices count as an asset on paper, but only help your cash position once they’re actually paid. Example: following up on $5,000 of overdue invoices can measurably improve your ratio once collected.
- Review slow-moving stock. Stock that isn’t selling ties up money that could be cash instead — consider a sale or discount to clear it.
- Negotiate payment terms. Longer terms with suppliers, or asking customers to pay faster, both help your short-term position.
- Keep an eye on short-term debt. Relying heavily on short-term loans or a maxed-out line of credit pulls this ratio down even if the business is otherwise healthy.
In short: this ratio is a simple early-warning check — worth glancing at every few months, not just at tax time.
Figures and results from these calculators are a general guide only and are not financial or professional advice. Consider getting professional advice, such as from a bookkeeper or accountant, before making decisions based on these results.