Current ratio
Current assets ÷ current liabilities. The broadest measure because it includes inventory and other current assets.
Liquidity Calculators
Quick Answer
What Do the Liquidity Calculators Measure?
The Liquidity Calculators help investors evaluate whether a company has enough short-term assets and cash to meet its current obligations. They calculate the cash ratio, current ratio, quick ratio and cash flow per share using figures from the company’s financial statements. These results can help users compare short-term financial strength, cash availability and liquidity risk across companies.
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Liquidity & Cash Flow Studio
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Pinned comparisons
How to use the liquidity calculators
Liquidity ratios estimate whether a company can meet obligations due within the next year. The studio calculates the current ratio, quick ratio, cash ratio and operating cash flow per share. Each measure applies a different level of caution, so it is better to examine them together than to rely on one number.
Use figures from the same balance sheet date. Cash, marketable securities, receivables, inventory, current assets and current liabilities come from the balance sheet. Operating cash flow comes from the cash flow statement, and diluted shares are usually reported with earnings per share.
Quick ratio
Cash, securities and receivables ÷ current liabilities. This removes inventory and less liquid current assets.
Cash ratio
Cash and marketable securities ÷ current liabilities. The most conservative of the three balance sheet ratios.
Cash flow per share
Operating cash flow ÷ diluted shares. This expresses operating cash generation on a per share basis.
A worked liquidity example
Example company
A company has $500,000 of current assets, including $100,000 of inventory. It has $120,000 of cash, $30,000 of marketable securities and $250,000 of current liabilities.
- Current ratio: $500,000 ÷ $250,000 = 2.00.
- Quick ratio using current assets less inventory: $400,000 ÷ $250,000 = 1.60.
- Cash ratio: $150,000 ÷ $250,000 = 0.60.
If annual operating cash flow is $180,000 and diluted shares total 90,000, operating cash flow per share is $2.00. That does not mean shareholders receive $2.00; it is an analytical measure of cash generated by operations.
What the results can and cannot tell you
| Signal | Possible interpretation | Important limitation |
|---|---|---|
| Ratio above 1 | Relevant current assets exceed current liabilities. | Asset quality and timing still matter. |
| Falling quick ratio | Short term financial flexibility may be weakening. | Seasonality or a planned investment may explain the change. |
| Strong cash ratio | The company holds a large immediate cash buffer. | Excess idle cash can also reduce returns. |
| Rising cash flow per share | Operating cash generation is improving relative to shares. | Working capital changes can make one period unusual. |
Industry context matters. Supermarkets may operate with low current ratios because customers pay immediately, while a project business may need a larger liquidity buffer because cash receipts are uneven.
Common liquidity analysis mistakes
- Assuming every receivable and inventory item can be converted to cash quickly.
- Comparing a seasonal quarter with a company’s normal year end position.
- Ignoring unused credit facilities, debt maturities and covenant requirements.
- Using net cash flow instead of operating cash flow in the per share calculation.
- Treating one healthy ratio as proof that the business has no financial risk.
Where to continue your research
Read the notes to the financial statements for restrictions on cash, receivable quality and debt maturity details. You can find US company filings through SEC EDGAR. Compare liquidity with leverage, profitability and cash flow trends before reaching a conclusion.
Liquidity calculator questions
What is a good current ratio?
There is no universal target. A ratio above 1 is often reassuring, but business model, cash cycle, supplier terms and access to funding can make a lower or higher figure reasonable.
Why does the quick ratio exclude inventory?
Inventory may take time to sell and may require discounting. Removing it creates a stricter test of short term resources.
Can a profitable company have poor liquidity?
Yes. Profit is not the same as available cash. Rapid growth, slow collections, inventory purchases or debt repayments can create a cash squeeze.
