1. What Are Current and Quick Ratios?

The Current Ratio and Quick Ratio are financial liquidity ratios that measure a company's ability to pay short-term obligations. The Current Ratio includes all current assets, while the Quick Ratio (or Acid-Test Ratio) excludes inventory and other less liquid current assets.

2. How Do These Ratios Work?

The calculator uses these equations:

Where:

• \( Assets \) — Total current assets (USD)
• \( Liabilities \) — Total current liabilities (USD)
• \( Inventory \) — Value of inventory (USD)

Explanation: Higher ratios indicate better short-term financial health. The Quick Ratio provides a more conservative measure by excluding inventory.

3. Importance of Liquidity Ratios

Details: These ratios are crucial for assessing a company's short-term financial stability, creditworthiness, and ability to meet obligations without selling inventory.

4. Using the Calculator

Tips: Enter all values in USD. Assets and liabilities must be positive numbers. Inventory must be less than or equal to total assets.

5. Frequently Asked Questions (FAQ)

Q1: What is a good Current Ratio?
A: Generally, 1.5-3.0 is considered healthy. Below 1 may indicate liquidity problems, while above 3 might suggest inefficient asset management.

Q2: What is a good Quick Ratio?
A: 1.0 or higher is typically good, indicating the company can meet short-term obligations without selling inventory.

Q3: Why exclude inventory from Quick Ratio?
A: Inventory may not be easily convertible to cash, especially in distressed situations, making it a less reliable source for immediate obligations.

Q4: How often should these ratios be calculated?
A: Typically calculated quarterly with financial statements, or more frequently for internal monitoring.

Q5: Are there industry differences in these ratios?
A: Yes, acceptable ratios vary by industry. Retail often has lower ratios due to high inventory turnover, while service businesses may have higher ratios.