--- title: "Current Ratio and Quick Ratio Explained With Examples | MCC" description: "Learn how to calculate the current ratio and quick ratio, what each says about short-term liquidity and how lenders and owners can use them wisely." url: "https://mcc-solutionsnj.com/bookkeeping/guides/current-ratio-and-quick-ratio-explained" --- Bookkeeping guide · Updated October 23, 2026 # Current Ratio and Quick Ratio Explained With Examples The current ratio and quick ratio are two quick checks of whether a business can pay its short-term bills. Lenders often ask for them, and owners can use them to spot trouble early. This guide covers the formulas, an example and the limits of each. By [Matthew Coleman](/about), MCC Solutions **Quick answer.** The current ratio is current assets divided by current liabilities. With $80,000 of current assets and $40,000 of current liabilities it is 2.0, meaning two dollars of short-term assets for every dollar owed in the near term. The quick ratio is a stricter version. Want this handled for you? Monthly bookkeeping, cleanup and year-end close for small businesses. Start with a free health check of your books. [Free health check](/bookkeeping/health-check)[Get a quote](/bookkeeping/#interest) **Related:** [Closing entries and retained earnings](/bookkeeping/guides/closing-entries-and-retained-earnings) · [Void vs delete a transaction](/bookkeeping/guides/voiding-vs-deleting-transactions) · [NJ 1099 contractor rule (ABC test)](/bookkeeping/guides/nj-independent-contractor-rule-abc-test-2026) **Free tools:** [Current ratio calculator](/bookkeeping/current-ratio-calculator) · [How many sales do I need to break even?](/bookkeeping/break-even-calculator) [![Intuit ProAdvisor Gold tier badge](/img/credentials/intuit-proadvisor-gold.png)](https://proadvisor.intuit.com/app/accountant/search?searchId=matthew-coleman77)Gold tier in Intuit's ProAdvisor program. [See my Intuit listing](https://proadvisor.intuit.com/app/accountant/search?searchId=matthew-coleman77) Keeping your own books? Tallyfinch does invoices, bank import and reports on your computer. [See Tallyfinch](/bookkeeping/mcc-books-downloadable-bookkeeping-software) ## Current ratio The current ratio equals current assets divided by current liabilities. If you have $80,000 of current assets and $40,000 of current liabilities, the ratio is 2.0. That means you hold two dollars of short-term assets for every dollar you owe in the near term. A ratio above 1.0 means current assets exceed current liabilities. Below 1.0 means they do not, which can signal pressure on cash, though some businesses operate that way by design. ## Quick ratio The quick ratio is stricter. It leaves out inventory and prepaid items, because they may not turn into cash quickly. Divide cash plus receivables by current liabilities. With $40,000 of cash, $25,000 of receivables and $40,000 of current liabilities, the quick ratio is 65,000 divided by 40,000, or about 1.6. If the quick ratio is much lower than the current ratio, inventory makes up a big part of your short-term assets. That matters if the inventory sells slowly. ## What lenders look for Lenders and credit providers sometimes set a minimum current ratio as a condition of a loan. If you have a covenant like that, track the ratio each month so you are never surprised by a breach. The levels they expect depend on the industry and the lender. Ask which definition they use, since some include only certain accounts. ## Limits of the ratios Both ratios use balance sheet totals at one date. They do not show timing. A business with a good ratio can still run short if big bills are due before big receipts arrive. They also depend on accurate books. Unreconciled accounts, missing bills or customer balances that will never be collected all distort the result. Clean books come first. ## Using them well Track both ratios monthly and look at the trend, not a single month. Compare them to your own history and, where you can, to similar businesses. If the numbers slip, ask which part moved: cash, receivables, inventory or short-term debt. Then look at the cause, such as slower customers or a large purchase, before deciding what to change. ## A worked comparison Take two businesses with the same $80,000 of current assets and $40,000 of current liabilities. Both have a current ratio of 2.0. The first holds $60,000 in cash and receivables. The second holds $60,000 in inventory and only $20,000 in cash and receivables. The first has a quick ratio of 2.0 and the second only 0.5. The second business looks equally healthy on one ratio and weak on the other. This is why it helps to look at both, and to ask what the assets are made of, not only how large they are. ## Common questions **What is a good current ratio?** It depends on the industry. A ratio comfortably above 1.0 is common, but compare yours to similar businesses and to your own history. **Why does the quick ratio leave out inventory?** Inventory may take time to sell, so the quick ratio focuses on assets that turn into cash faster. **Do I need these ratios if I have no loan?** They are still useful as a regular health check of your finances. This guide is general information, not tax, legal or accounting advice. Rules, fees and due dates change; check with the IRS, the NJ Division of Taxation or a licensed professional for your situation. Let us handle it [### Monthly bookkeeping Categorizing, reconciling and monthly reports, with cleanup, payroll and NJ filings available. Bookkeeping →](/bookkeeping/) [### QuickBooks Online Monthly bookkeeping, cleanup and reconciliation in QuickBooks Online for New Jersey small businesses. Your account stays in your name. QuickBooks →](/bookkeeping/software/quickbooks-online)[### Zoho Books Bookkeeping and reconciliation in Zoho Books for New Jersey businesses, especially those already using other Zoho apps. Zoho Books →](/bookkeeping/software/zoho-books) More guides - [Gross Profit vs Net Profit: What Each One Tells You](/bookkeeping/guides/gross-profit-vs-net-profit-explained) - [How to Set Prices for a Small Business: 3 Methods](/bookkeeping/guides/how-to-set-prices-for-a-small-business) - [How to Calculate ROI and Payback on a Business Purchase](/bookkeeping/guides/how-to-calculate-roi-on-a-business-purchase) - [How to Read an Accounts Receivable Aging Report](/bookkeeping/guides/how-to-read-an-accounts-receivable-aging-report) Free tool - [Bookkeeping health check](/bookkeeping/health-check) [All guides](/bookkeeping/guides) Reach small landlords and property managers who read this guide: [advertise here](/advertise#landlord). Do it yourself ### Business Finance Ratios Bundle Read your statements, check the ratios a lender looks at, and model where the business could go, in three linked-by-method workbooks. [See what's inside ($89)](/toolkits/business-finance-ratios-bundle)14-day full refund [![Cover of Bookkeeping Fundamentals (ebook) by Matthew Colt](/img/toolkits/bookkeeping-fundamentals-ebook/cover.webp)](/toolkits/bookkeeping-fundamentals-ebook) From the bookshelf ### Bookkeeping Fundamentals A college-level bookkeeping course, without the tuition. By Matthew Colt, $9.99 as an ebook (EPUB and PDF). [See the book](/toolkits/bookkeeping-fundamentals-ebook) [Read the first pages free](/toolkits/bookkeeping-fundamentals-ebook#free-starter) Excel workbook ### Financial Ratio Analysis Workbook Enter three years of statements and see margins, liquidity, leverage and efficiency ratios side by side, with what each one means in plain English. [See what is inside ($29)](/toolkits/financial-ratio-analysis-workbook) Also in the [Business Finance Ratios Bundle](/toolkits/business-finance-ratios-bundle): 3 products for $89 instead of $117 separately. Tallyfinch ### Books you keep on your own computer Tallyfinch does invoices, bills, bank import, reconciliation and the main reports, in a file you own. $99 once, then $5 a month for updates; the app keeps working if you stop the plan. It does not do payroll or sales tax filing. The free download records up to 60 entries. [See Tallyfinch](/bookkeeping/mcc-books-downloadable-bookkeeping-software) [Download it free](/tools/pro/trial/mccBooks) [Compare the three apps](/software) ## Rather have us keep the books? Ask for a quote. [Get a Quote](/bookkeeping/#interest)[Call (908) 444-6373](tel:+19084446373)