Is a current ratio of 2 good?

It is the rule of thumb, and like most rules of thumb it depends on the industry. A supermarket runs below one comfortably; a manufacturer with slow stock needs more.

Why exclude inventory from the quick ratio?

Because selling stock takes time and may need a discount. A bill due on Friday cannot be paid with unsold goods.

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Current & Quick Ratio Calculator

Current, quick and cash ratios together. They form a ladder of strictness, and a large gap between the current and quick ratios says the balance sheet is held up by stock.

Also called: current ratio calculator, quick ratio.

Current ratio

1.64

Current ratio 1.64, quick ratio 1, cash ratio 0.29. Adequate, with little room to spare. The gap between the first two is inventory, which cannot pay a bill this week.

Quick ratio

Cash ratio

0.29

Working capital

₹70,00,000

Quick assets

₹1,10,00,000

Assessment

Adequate, with little room to spare.

How this is calculated

Method and background

How this is calculated

The current ratio counts everything due within a year against everything owed within a year. The quick ratio removes inventory and prepayments, which cannot be turned into cash quickly enough to settle a payable next week. The cash ratio keeps only cash. Reading all three at once is more informative than any one: a healthy current ratio with a poor quick ratio means the liquidity is sitting in a warehouse.

each ratio strips out one more thing that cannot readily become cash

CA: Current assets
CL: Current liabilities

Worked examples

Each of these is asserted on every build. If a change to the engine ever moved one of these answers, the build would fail before the page could print it.

a stock-heavy balance sheet

Current assets: ₹1,80,00,000
Of which inventory: ₹65,00,000
Of which prepaid: ₹5,00,000
Of which cash: ₹32,00,000
Current liabilities: ₹1,10,00,000

Current ratio1.64

1.1 crore of quick assets against 1.1 crore of liabilities

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no inventory makes the two ratios agree

Current assets: ₹1,80,00,000
Of which inventory: ₹0
Of which prepaid: ₹0
Of which cash: ₹1,80,00,000
Current liabilities: ₹1,10,00,000

Current ratio1.64

boundary

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Method and limits

What it assumes

Standard classification of current assets and liabilities.

What it deliberately does not model

Very high ratios can indicate idle cash or uncollectable receivables rather than strength.
What counts as adequate varies enormously between industries.

Formula version 1.0.0 · definition 1.0.0 · India · Report a problem with this calculator

Frequently asked questions

Is a current ratio of 2 good?: It is the rule of thumb, and like most rules of thumb it depends on the industry. A supermarket runs below one comfortably; a manufacturer with slow stock needs more.
Why exclude inventory from the quick ratio?: Because selling stock takes time and may need a discount. A bill due on Friday cannot be paid with unsold goods.