Empire AI Finance
Liquidity Ratios
Three ways to measure whether your business can meet its short-term obligations. Calculate the current ratio, quick ratio and cash ratio in seconds.
Liquidity Ratio Calculator
Your Numbers
Cash, receivables, inventory and assets due within 12 months.
Payables, short-term debt, VAT and obligations due within 12 months.
Stock or work-in-progress included in current assets.
Bank balances and immediately accessible cash.
Current Ratio
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Quick Ratio
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Cash Ratio
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What Liquidity Ratios Mean
Liquidity ratios measure how easily a business can pay its short-term debts. They compare different types of short-term assets to current liabilities.
Each ratio is stricter than the last. The current ratio includes all current assets. The quick ratio removes inventory. The cash ratio only counts cash and cash equivalents.
Current Ratio Formula
Current Ratio = Current Assets ÷ Current Liabilities
The current ratio shows whether the business has enough short-term assets to cover short-term debts. A ratio above 1.0 means current assets exceed current liabilities.
Quick Ratio Formula
Quick Ratio = (Current Assets − Inventory) ÷ Current Liabilities
The quick ratio is also called the acid-test ratio. It excludes inventory because stock may take time to sell or may lose value.
Cash Ratio Formula
Cash Ratio = Cash & Cash Equivalents ÷ Current Liabilities
The cash ratio is the strictest liquidity measure. It only counts cash and assets that can be turned into cash almost immediately.
Worked Example
A business has £60,000 in current assets, £30,000 in current liabilities, £15,000 in inventory and £10,000 in cash.
Current Ratio = £60,000 ÷ £30,000 = 2.00
Quick Ratio = (£60,000 − £15,000) ÷ £30,000 = 1.50
Cash Ratio = £10,000 ÷ £30,000 = 0.33
Liquidity Ratio Comparison Table
| Ratio | Formula | What it tests | Typical benchmark |
|---|---|---|---|
| Current ratio | Current assets ÷ Current liabilities | Overall short-term coverage | > 1.2 |
| Quick ratio | (Current assets − Inventory) ÷ Current liabilities | Coverage without selling stock | > 1.0 |
| Cash ratio | Cash ÷ Current liabilities | Immediate cash coverage | > 0.2 |
Use Cases
Credit Applications
Lenders often review liquidity ratios when assessing short-term credit risk and repayment ability.
Cash Flow Stress Testing
Model how a fall in sales, delayed receivables or rising payables affects your ability to cover obligations.
Investor Reporting
Include current and quick ratios in management accounts to show financial discipline and stability.
Operational Decision-Making
Use the quick and cash ratios to decide whether you can afford new spending before receivables arrive.
Mini-FAQ
What are liquidity ratios?
Liquidity ratios measure whether a business can pay its short-term obligations using its short-term assets. They include the current ratio, quick ratio and cash ratio.
What is the current ratio formula?
Current ratio equals current assets divided by current liabilities. A ratio of 1.5 means the business has £1.50 of short-term assets for every £1.00 of short-term liabilities.
What is the quick ratio formula?
Quick ratio equals current assets minus inventory, divided by current liabilities. It is a stricter measure because inventory may not convert to cash quickly.
What is the cash ratio formula?
Cash ratio equals cash and cash equivalents divided by current liabilities. It is the strictest liquidity test because it only counts immediately available cash.
What is a good current ratio?
A current ratio between 1.2 and 2.0 is generally considered healthy. Below 1.0 means current liabilities exceed current assets.
Founder Vision
Empire AI Finance exists to make financial clarity practical. Liquidity ratios are essential for founders because they reveal whether the business can survive a tight month or fund its next move.
Our calculators help you track current, quick and cash ratios so you can make decisions before pressure turns into a crisis.
Trust & Safety
Empire AI Finance is a software and analysis platform. We do not provide financial advice, manage money, execute trades, hold deposits or promise investment returns. The information on this page is for educational and informational purposes only.
For decisions affecting your business, tax position or legal obligations, consult a qualified accountant or legal professional familiar with your jurisdiction.
What Empire AI Finance Does Not Provide
Financial Advice
We do not give personalised financial, investment, tax or legal advice. Our outputs are generated by software for informational purposes.
Trading or Brokerage
We do not execute trades, hold securities, or operate an investment platform. Empire AI Finance is a software toolset, not a broker-dealer.
Deposit-Taking or Custody
We never request, receive or hold client funds, cryptocurrencies or assets. All payments go through secure third-party checkout providers.
Promises of Returns
We do not guarantee profits, savings, valuations or business outcomes. Any examples shown are illustrative, not typical or guaranteed.
Explore the full toolkit
From liquidity ratios and working capital to gross profit and net margin, Empire AI Finance gives you the calculators and explainers to understand your numbers with clarity.
Last updated: 23 October 2026