Liquidity Ratio Calculator

Liquidity Ratio Calculator – Current, Quick and Cash Ratios Explained

The Liquidity Ratio Calculator helps you measure how comfortably a business can meet its short-term obligations using its current assets. Instead of manually calculating current ratio, quick ratio, cash ratio and working capital, this tool gives you all key liquidity indicators in one place, along with runway and target ratio analysis.

Liquidity analysis is a core part of financial health checks for companies, lenders and investors. A strong liquidity position suggests that the business can pay suppliers, employees and lenders on time. Weak liquidity can signal stress, even if the company looks profitable on paper.

How This Liquidity Ratio Calculator Works

The calculator is divided into three focused modes:

• Core Liquidity Ratios: Calculates current, quick and cash ratio plus working capital.
• Working Capital & Runway: Estimates net working capital, current ratio and liquidity runway in months.
• Target Liquidity: Shows how much you may need to adjust assets or liabilities to reach a target current ratio.

All you need to do is enter key balance sheet and expense figures. The calculator handles the ratios, conversions and interpretations so you can focus on decisions.

Mode 1: Core Liquidity Ratios

This mode uses your current assets, inventory, cash, marketable securities, accounts receivable and current liabilities to compute three standard liquidity ratios and working capital.

Current Ratio

This ratio shows how many units of current assets the company holds for each unit of current liabilities. A value above 1.0 means current assets exceed current liabilities.

Quick Ratio (Acid-Test Ratio)

The quick ratio focuses on the most liquid assets by excluding inventory and other items that may not be easily converted to cash in the short term.

Cash Ratio

The cash ratio is the most conservative measure of liquidity, comparing only cash and near-cash assets to short-term obligations.

Working Capital

Working capital expresses liquidity in absolute currency terms rather than as a ratio.

Mode 2: Working Capital and Liquidity Runway

The second mode brings operating expenses into the picture to estimate how long your company can operate with current net working capital. This can be especially useful for cash flow planning and stress testing.

Formulas

If working capital is positive, runway shows how many months of expenses it can cover. If working capital is negative, the calculator will still show the value, highlighting a potential funding gap.

Mode 3: Target Liquidity Analysis

The third mode helps answer the question: \u201cWhat do we need to change to reach a target current ratio?\u201d You provide current assets, current liabilities and a target current ratio. The calculator then shows required current assets and potential actions.

Required Current Assets for Target Ratio

From this, the calculator computes:

• Additional Assets Needed: Required Current Assets − Current Assets (if positive).
• Alternative Liability Reduction: An estimate of how much current liabilities would need to decrease to reach the target ratio using existing current assets.

Why Liquidity Ratios Matter

Liquidity ratios are widely used by banks, investors, analysts and management to assess short-term financial strength. They help answer questions such as:

• Can the company pay its bills on time?
• Is short-term debt too high relative to liquid assets?
• Is there enough buffer to handle unexpected shocks?
• Is working capital being used efficiently or sitting idle?

Very low liquidity ratios can signal stress and higher default risk. Extremely high ratios may suggest underutilised assets or overly conservative capital structure.

Interpreting Current, Quick and Cash Ratios

There is no single \u201ccorrect\u201d liquidity ratio because every industry has its own norms. Still, some general thoughts can help:

• A current ratio below 1.0 indicates current liabilities exceed current assets.
• A quick ratio significantly lower than the current ratio shows heavy reliance on inventory.
• A cash ratio close to or above 1.0 is very conservative but may suggest idle cash if maintained over long periods.

Examples of Liquidity Ratio Calculations

Example 1: Core Liquidity Ratios

Suppose a company has:

• Current Assets: $150,000
• Inventory: $40,000
• Cash: $30,000
• Marketable Securities: $10,000
• Accounts Receivable: $50,000
• Current Liabilities: $80,000

Current ratio is 150,000 ÷ 80,000 = 1.88. Quick ratio is (30,000 + 10,000 + 50,000) ÷ 80,000 = 1.13. Cash ratio is (30,000 + 10,000) ÷ 80,000 = 0.50. Working capital is 150,000 − 80,000 = $70,000.

Example 2: Liquidity Runway

If the same company has monthly operating expenses of $20,000, working capital of $70,000 represents 70,000 ÷ 20,000 = 3.5 months of runway. This indicates that without changes or additional financing, current net liquidity could cover about three and a half months of operations.

Example 3: Target Current Ratio

Assume current assets are $150,000, current liabilities are $80,000 and the target current ratio is 2.0. Required current assets are 2.0 × 80,000 = $160,000. Additional assets needed are $10,000 if liabilities stay unchanged. Alternatively, current liabilities could be reduced to 150,000 ÷ 2.0 = $75,000 to reach the same ratio.

How to Use This Tool Effectively

• Start with the Core Liquidity Ratios tab to get a snapshot of current, quick and cash ratios.
• Use the Working Capital & Runway tab to see how long your net liquidity might cover operating expenses.
• Experiment in the Target Liquidity tab to plan for stronger ratios by changing assets or liabilities.
• Compare results to industry benchmarks and historical company data rather than relying on generic thresholds alone.

Related Tools from MyTimeCalculator

If you want to explore broader financial health and planning, these tools may also be helpful:

• Net Worth Calculator
• Loan Payment Calculator
• Return on Investment Calculator
• Compound Interest Calculator