How the math works
How to use it
- Take the balance-sheet figures from one date and the profit-and-loss figures from the twelve months ending on that date. Mixing periods is the fastest way to get a ratio that means nothing.
- Remember that current liabilities include the next twelve months of loan payments, not just trade creditors. Leaving those out makes the current ratio look better than it is, which is the exact figure a lender will recompute.
- Read the working capital line before the ratios. It is a dollar amount you can act on; the ratios are the same information rescaled.
- Then read the growth line. Growing sales consumes cash before it produces any, and that is what catches profitable businesses out.
A worked example
Sales of $480,000, cost of goods $288,000, operating costs $150,000 and $9,000 of interest gives a 40.0% gross margin and a 6.9% net margin. Against $96,000 of current assets and $61,000 of current liabilities, the current ratio is 1.57× and working capital is $35,000. Take the $42,000 of inventory out and the quick ratio is 0.89× — the cover depends on selling stock, not on cash in hand. Stock sits about 53 days and customers pay in about 29. Growing sales 20% next year would need roughly $7,000 more working capital before any of it turns into cash.
Where this sits in the Financial Literacy resource
A calculator tells you where you are. It does not tell you what to do next, and a number without a plan behind it tends to produce anxiety rather than progress. These stages are free, need no account, and cover the decision this calculator is measuring.
Common questions
Why are there no industry benchmarks on this page?
Because the good ones are not free. Meaningful industry comparisons come from paid datasets like the RMA Annual Statement Studies, which we cannot verify or link for you, and a made-up "healthy range" is worse than none at all. The comparison that costs nothing and tells you more is your own figures from three and twelve months ago.
What is the difference between the current and quick ratio?
The quick ratio takes inventory out. Inventory is a current asset on paper, but it is not cash until somebody buys it, and in a bad month that is exactly when it stops selling. If your current ratio looks fine and your quick ratio does not, your short-term cover depends on shifting stock.
Why is my debt-to-net-worth figure blank?
Because liabilities are at or above total assets, so net worth is zero or negative and the ratio has no meaningful value — a negative one looks smaller than a positive one and means the opposite. The calculator says so rather than printing a number. That situation is a solvency question worth taking to an accountant.
What is working capital actually for?
It is the cushion between money coming in and money falling due. Payroll lands on a date whether or not a customer has paid. Working capital is what covers the gap, and it is why a business can be profitable on paper and still miss a payment.
Why does growth need more working capital?
Because you buy the stock, do the work and pay the wages before the customer pays you. More sales means more of all three tied up at once. This is why fast-growing businesses fail for lack of cash, and it is the least intuitive thing on this page.
What this calculator is not
It is an educational model, not a projection and certainly not advice. It knows nothing about your income, your state, your debts or your benefits status, and it ignores taxes and fees unless the page says otherwise. If you receive SSI or SSDI some of this math works differently and getting it wrong can cost you eligibility — start with the Disability Wealth Guide instead. Our sourcing and correction policy is on the editorial standards page.
Nothing here is stored. Every calculation runs in your browser. No numbers are transmitted, logged or saved to any server, and no account is required. Close the tab and it is gone.