Educational material from 
What you will learn
- Calculate current ratio as current assets divided by current liabilities.
- Calculate quick ratio under an explicitly defined boundary.
- Track how an event changes both sides of a ratio.
One balance-sheet date with four clear components
Our fictional company has cash of SEK 60 million, receivables of 90 million and inventory of 150 million. Total current assets are 300 million and current liabilities 200 million. There are no prepaid expenses or other current assets in the model. The figures do not come from a real company.
Current ratio here means all current assets divided by current liabilities. Quick ratio uses the same denominator but excludes inventory. For an actual report, check the definition and whether further components require adjustment. Quick ratio and cash are different concepts: receivables remain in our numerator.
If the table does not fit, scroll it sideways.
| Component | Amount |
|---|---|
| Cash | SEK 60 million |
| Receivables | SEK 90 million |
| Inventory | SEK 150 million |
| Total current assets | SEK 300 million |
| Current liabilities | SEK 200 million |
Same denominator, different numerators
Current ratio is 300 / 200 = 1.50, also expressible as 150%. Quick ratio is (300 − 150) / 200 = 0.75, or 75%. The difference comes from the 150 million inventory included in the first numerator but excluded from the second.
A value of 150% means stated current assets are 1.5 times current liabilities at the balance-sheet date. It does not mean 150% of a particular liability can be paid in cash today. Receivables have due dates and may be uncertain; inventory must first be sold. Without further information, neither ratio describes every future payment.
Sell inventory in a separate calculation scenario
Starting from the initial table, inventory with a carrying value of SEK 50 million sells for exactly 50 million paid in cash. Inventory becomes 100 million and cash 110 million. Total current assets remain 300 million, leaving current ratio at 150%. Quick ratio becomes (300 − 100) / 200 = 100%.
Run another case from the same start: the same inventory sells for SEK 40 million with no other costs. Cash becomes 100 million and inventory 100 million. Current assets become 290 million; current ratio is 145% and quick ratio 95%. The sale releases cash but reduces total carrying value of assets by 10 million.
Check dates and payment terms
Always state the balance-sheet date and whether the answer is in times or percent. Compare the same definition over time. Industry, seasonality and payment terms affect what the measure tells you. We give no universal desirable level and use neither ratio as a guarantee that a company can pay every liability.
Investiq’s company guide helps you start with the correct company and material. Calculate these ratios yourself from report components; the lesson promises no particular app display of them. Continue with working capital to compare a monetary difference with a ratio. The measures use similar components but answer different questions.
Try it yourself
Another company has cash of SEK 40 million, receivables of 80 million, inventory of 80 million and current liabilities of 160 million. It pays 20 million of the liabilities from cash. Calculate both ratios before and after under the same definition.
Show the solution and explanation
Before: current ratio 125% and quick ratio 75%. After: current ratio approximately 128.57% and quick ratio approximately 71.43%.
Before, the ratios are 200 / 160 and 120 / 160. Afterwards, assets are 180, quick assets 100 and liabilities 140 million. 180 / 140 × 100 ≈ 128.57; 100 / 140 × 100 ≈ 71.43. Paying a liability need not raise both ratios.
Check your understanding
Is quick ratio the same as cash divided by current liabilities?
Not under our definition. Receivables are also included in the numerator.
Why does current ratio stay unchanged when inventory sells at carrying value for cash?
One current asset is exchanged for another of equal value, with unchanged liabilities in that scenario.
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More lessons on this topic
Analyse company finances
Sources and examples
- SEC: income statements, balance sheets, cash flows and inventory turnover
- CFA Institute: comparisons, liquidity and limitations of ratios
The sources support the factual explanations. Calculations and exercises were created for this lesson. Amounts and price changes are invented unless stated otherwise.
This material is educational and does not recommend securities to buy. A simulated result does not guarantee a future result.
