Working capital ratio calculator
Current ratio
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An estimate to help you plan, not an offer or approval. Lenders set their own policies, costs and limits.
Quick answer
This working capital ratio calculator needs three figures from your balance sheet: current assets, how much of that is stock, and current liabilities. It returns your current ratio, your quick ratio (which leaves stock out), your net working capital in dollars and a plain-English read of the result. A ratio of 1.5 or more shows a healthy buffer; under 1 means short-term debts exceed liquid assets.
Key points
- Current ratio = current assets ÷ current liabilities
- Quick ratio removes stock, because stock can be slow to turn into cash
- Short-term debt and ATO arrears drag the ratio down more than most owners expect
- Lenders read the trend and the reason, not one number in isolation
Profit answers “is this business worth owning?” Working capital answers “can it meet the bills landing over the next few weeks?” Plenty of profitable firms still hit a wall, usually because cash is tied up in stock and unpaid invoices while suppliers, the ATO and payroll all want paying now. The working capital ratio is the quickest way to measure that squeeze, and it’s one of the first numbers a credit analyst works out from your balance sheet.
What you’ll need from the balance sheet
Pull a balance sheet from your accounting software for the most recent month end, then enter:
- Current assets. Cash at bank, trade debtors, stock and anything else that will turn into cash within 12 months. Business.gov.au defines a current asset in just those terms.
- Of which stock. The part of current assets that is inventory, raw materials or work in progress. It’s already inside the first figure; this box just tells the calculator how much to strip out for the quick ratio.
- Current liabilities. Debts due within 12 months: trade creditors, GST and PAYG owing, super, ATO payment plans, credit cards, an overdraft and the next 12 months of any loan repayments.
The four results
Current ratio. Current assets divided by current liabilities, shown to two decimals with a “×”. A result of 1.40× means $1.40 of short-term assets for every dollar of short-term debt.
Quick ratio (without stock). The same sum with stock removed from the assets. It answers a sharper question: if no more stock sold, could the business still meet its short-term debts?
Net working capital. Current assets minus current liabilities, in dollars. A negative figure is shown with a minus sign.
How lenders tend to read it. The calculator applies three plain bands to the current ratio:
| Current ratio | Label shown |
|---|---|
| 1.5 or more | Healthy buffer |
| 1.0 to just under 1.5 | Covers short-term debts |
| Under 1.0 | Short-term debts exceed liquid assets |
These bands are a general guide, not a lender’s policy. A business where customers pay on the spot can run a lower ratio safely than one waiting 60 days for every invoice.
How debt structure moves the ratio: a wholesaler’s example
A food wholesaler has a balance sheet at 30 September that looks like this:
- Current assets $380,000: cash $30,000, debtors $190,000, stock $160,000
- Current liabilities $350,000: trade creditors $180,000, ATO arrears $70,000, a short-term online loan with $100,000 left to repay over the next nine months
Entered into the calculator:
- Current ratio: 1.09×, labelled “Covers short-term debts”
- Quick ratio: 0.63×
- Net working capital: $30,000
A quick ratio of 0.63 means the business is relying on selling stock to pay the ATO and the online lender. One slow month and it falls behind.
Now suppose the owner refinances the $70,000 ATO debt and the $100,000 short-term loan into a single five-year secured loan of $170,000 (ignoring fees for simplicity). Only about $24,000 of principal falls due in the next 12 months, so that’s all that stays in current liabilities.
- Current liabilities drop to $204,000
- Current ratio: 1.86×, now labelled “Healthy buffer”
- Quick ratio: 1.08×
- Net working capital: $176,000
Nothing about the trading changed. The debt simply moved from short to long term. That’s why refinancing expensive short-term debt is often the first conversation for a business with a weak ratio. Curious whether a move like this would work for you? Ask us about your balance sheet; asking doesn’t involve a credit check.
Why lenders care, and what they look at next
A bank will often look at the current ratio as part of its credit assessment, and some facilities include a minimum ratio as a loan covenant. Banks offer some of the best pricing in the market, so if your ratio is solid and your books are current, start there.
Non-bank lenders also look at the ratio, but tend to weigh it alongside bank statements and recent trading. In both cases, the questions behind the number matter:
- Is it trending up or down? Three balance sheets in a row tell a far better story than one.
- Why is it low? Rapid growth, a big order being filled, or a seasonal stock build are all reasonable explanations. Mounting ATO arrears is a harder one.
- How good are the debtors? $190,000 owed by large, reliable customers is worth more than the same amount spread across slow payers with invoices past 90 days. See aged receivables.
- What will the loan do to the ratio? A loan that clears short-term pressure improves it; a short-term loan that just adds more current debt makes it worse.
Timing matters more than people think
A balance sheet is a snapshot. A retailer measured in early November, after building Christmas stock on supplier credit, will look stretched; the same business measured in late January, with stock sold and creditors paid, will look comfortable. If your business is seasonal, run the calculator at your tightest point and your strongest, and explain both to any lender. Our page on business loans for seasonal businesses covers how lenders handle the swing.
What the calculator can’t judge
It takes your figures at face value. It can’t tell whether stock is saleable at book value, whether debtors will actually pay, or whether a liability is about to be called in early. It also doesn’t look at cash flow timing within the year. For that, pair it with the cash flow gap calculator and the invoice finance calculator, which shows how much cash your debtor book could release.
Related calculators
- Cash flow gap calculator: how many dollars short you run while waiting on customers.
- Debt service coverage ratio calculator: whether profit covers all repayments.
- Cash runway calculator: how long your cash lasts if nothing changes.
Turning a tight ratio into breathing room
A low ratio isn’t a verdict on your business. Often it’s a sign that the debt is the wrong shape: too much of it due too soon. Reshaping it is exactly the kind of problem we help owners solve.
Want to test the idea? The enquiry form needs roughly a minute. Submitting it runs no credit check at all. We handle each enquiry ourselves rather than selling it on, and one of our specialists phones you to get the full picture. Enter your real turnover and the debts you’re carrying, so we can work out the right structure without a lot of back and forth.
Frequently asked questions
What is a good working capital ratio?
The calculator treats 1.5 or higher as a healthy buffer and 1 to 1.5 as enough to cover short-term debts. What's normal depends on the industry: a supermarket turning stock daily can run lower than a builder waiting on progress claims. Compare yourself with your own past results and with similar businesses.
What's the difference between the current ratio and the quick ratio?
The current ratio counts all current assets, including stock. The quick ratio leaves stock out, because stock has to be sold before it becomes cash and may sell for less than its book value. A business with a healthy current ratio but a weak quick ratio is relying on moving stock to pay its bills.
Where do I find current assets and current liabilities?
On your balance sheet, which your accounting software can produce for any date. Current assets are cash or things that become cash within 12 months; current liabilities are debts due within 12 months. If your books are behind, your bookkeeper can usually produce a reasonable version quickly.
Does a ratio under 1 mean I can't get a loan?
No. It's common in fast-growing and seasonal businesses. Lenders want to understand why it's low and whether it's improving. A ratio under 1 does make the purpose of the loan important: borrowing longer term to clear short-term pressure often lifts the ratio straight away.
Does a business loan count as a current liability?
Only the part due within the next 12 months. An overdraft or a short-term loan sits entirely in current liabilities, while a five-year loan is mostly non-current. That's why the structure of your debt can change your ratio as much as the amount.