Current ratio calculator: can your business cover its short-term debts?
Edited by Moe Ameen · Published
The current ratio is current assets divided by current liabilities. A business with $180,000 of current assets and $120,000 of current liabilities has a ratio of 1.50. The SBA's financial ratios guide says 1 means just enough to pay short-term debts and 2 typically indicates stability. On standard 7(a) loans, SBA rules have the lender work it out from a balance sheet that already includes the new loan.
Key takeaways
- Current ratio = current assets ÷ current liabilities, both taken from the balance sheet.
- Below 1.0, the bills due within a year are bigger than the assets you could turn into cash to pay them.
- The SBA's ratios guide calls 2 typically stable. A very high ratio can mean cash or inventory is sitting idle.
- On standard 7(a) loans over $350,000, the lender's credit memo has to include your current ratio.
- A new loan changes the ratio. Payments due in the next 12 months count as current liabilities.
How do you calculate the current ratio?
Divide total current assets by total current liabilities. $180,000 of current assets over $120,000 of current liabilities is 1.50.
Both numbers sit on your balance sheet [1][2]. Current assets are the ones expected to turn into cash within a year: cash, accounts receivable, inventory and other current assets [1]. CFI's list also includes marketable securities and prepaid expenses [2]. Current liabilities are what you owe within the year, such as accounts payable, wages, taxes payable, short-term debt and the part of long-term debt due this year [1].
| Line | Amount |
|---|---|
| Cash | $40,000 |
| Accounts receivable | $60,000 |
| Inventory | $70,000 |
| Prepaid expenses | $10,000 |
| Total current assets | $180,000 |
| Total current liabilities | $120,000 |
| Current ratio | 180,000 ÷ 120,000 = 1.50 |
CFI's own example has $60 million of current assets against $30 million of current liabilities, a ratio of 2.0 [2].
What is a good current ratio?
It depends on the industry. The SBA's ratios guide says 1 is just enough to pay short-term debts and 2 typically indicates stability.
Investopedia says a ratio below 1.00 often means a company couldn't meet its short-term obligations if they all came due at once [1]. Higher is generally better, up to a point. Investopedia notes that a ratio above about 3 may mean current assets or working capital aren't being managed well [1], and the SBA's guide says a high ratio could mean a company is sitting on too much cash [4].
| Industry | Benchmark |
|---|---|
| Grocery stores | 4.5 to 4.8 |
| Oil and gas | 2.4 to 2.6 |
Those two industries sit far apart, so compare your ratio with businesses like yours and with your own past years [1][4].
Why do lenders look at the current ratio?
It shows whether short-term assets cover the bills due within a year. SBA rules require it in the credit memo for standard 7(a) loans.
Investopedia says investors, analysts and lenders use the current ratio to judge whether a company can meet its short-term obligations [1]. For standard 7(a) loans, those over $350,000, the SBA's SOP 50 10 8.1 has the lender spread a pro-forma balance sheet. That's your current balance sheet adjusted for the SBA loan, other new debt, any equity injection and how the money will be used [3].
From that balance sheet and your income statements, the lender calculates the current ratio, debt to tangible net worth, debt service coverage and any other ratios it considers significant for your industry. It then compares them with industry trends and looks at whether you'll have enough working capital for at least the next 12 months [3]. The SOP's section on 7(a) Small Loans, $350,000 or less, doesn't include that ratio list [3]. What else lenders ask for is in what lenders check.
How does a new loan change your current ratio?
Payments due in the next 12 months add to current liabilities. Loan cash you keep in the business adds to current assets.
Take the business above at 1.50. It borrows $100,000 for equipment, and $20,000 of the loan is due over the next 12 months. The equipment isn't a current asset, so current assets stay at $180,000 while current liabilities rise to $140,000. The ratio drops to 1.29. If the same business kept the $100,000 as working capital cash, current assets would be $280,000 and the ratio would be 2.00. That's our arithmetic. A lender working from a balance sheet that includes the loan, as the SBA requires on standard 7(a) loans [3], would see the same shift.
What doesn't the current ratio tell you?
It's a snapshot of one day. It counts slow-paying receivables and hard-to-sell inventory as if they were close to cash.
Investopedia gives two examples: a company can post a high ratio while its receivables are badly aged, or while it holds inventory nobody will buy [1]. The Alaska SBDC adds that a high ratio may mean too much inventory or not enough sales [5]. The quick ratio leaves inventory out, so it's the stricter test. Lenders also check whether income covers loan payments, which is the DSCR.
Glisten tool
Current ratio calculator
Glisten tool · Current ratio calculator
— current ratio
Enter your current assets and current liabilities above zero.
What counts as a good ratio depends on the industry, and lenders build their own balance sheet view. Treat this as an estimate. It runs in your browser, and nothing you type is sent anywhere or saved.
We checked the calculator against the examples on this page. $180,000 ÷ $120,000 gives 1.50. CFI's $60 million ÷ $30 million gives 2.00 [2]. Adding a $100,000 equipment loan with $20,000 due this year gives 1.29, and keeping the $100,000 as cash gives 2.00.
Is this right for you?
Best for
- Getting a lender's view of your short-term position, before and after a new loan.
- Tracking your own ratio year to year, which Investopedia and the SBA's guide both suggest.
Not ideal for
- Judging whether income covers loan payments. Use the DSCR calculator for that.
- Matching a lender's figure exactly. Lenders build their own pro-forma balance sheet.
Frequently asked questions
What does a current ratio of 1.5 mean?
The business has $1.50 of current assets for every $1 of current liabilities [1].
Is a current ratio below 1 bad?
It means the bills due within a year are larger than your current assets, so the business could struggle if they all came due at once. Timing matters, though, since collections and payments rise and fall through the year [1].
Can a current ratio be too high?
Yes. Investopedia flags ratios above about 3 [1], and the SBA's guide says a high ratio could mean too much cash sitting idle [4].
Does the SBA set a minimum current ratio?
We didn't find one. SOP 50 10 8.1 requires lenders to calculate the ratio on standard 7(a) loans and compare it with industry trends, but it names no minimum [3].
Is the calculator private?
Yes. It runs in your browser, and nothing you type is sent anywhere or saved.
How we know this
On November 2, 2026 we read Investopedia's and CFI's current ratio pages, the credit analysis sections of the SBA's SOP 50 10 8.1 (effective October 1, 2026), the SBA's financial ratios learning guide and the Alaska SBDC's ratio list. The worked examples are our own arithmetic, and the calculator reproduces them.
- Current ratio explained with formula and examples, Investopedia. Checked November 2, 2026.
- Current ratio formula: overview, calculation and examples, Corporate Finance Institute. Checked November 2, 2026.
- SOP 50 10 8.1 technical policy updates (effective October 1, 2026), SBA. Checked November 2, 2026.
- Your business financial strategy: calculate and analyze your financial ratios, SBA (Ascent). Checked November 2, 2026.
- The top 10 financial ratios for business owners, Alaska Small Business Development Center. Checked November 2, 2026.