What the calculation includes
Current assets commonly include cash, receivables and inventory. Current liabilities can include supplier balances and other obligations classified as due in the near term. The figures come from the balance sheet, so the quality of that statement matters.
A headline amount can hide differences in liquidity. Slow-moving stock, disputed invoices and cash available today are not equally useful for meeting a payment due tomorrow.
An example with two different measures
A business with $70,000 in current assets and $45,000 in current liabilities has $25,000 of working capital. Its current ratio is approximately 1.56, calculated by dividing $70,000 by $45,000. The dollar amount and ratio describe related information but should not be labelled interchangeably.
Whether that position is comfortable depends on the business, the quality of the assets and the timing of its commitments. There is no universal target that fits every industry or operating cycle.
Turn the measure into a discussion
Review overdue receivables, inventory that is difficult to sell and supplier terms before concluding that more borrowing is the only answer. Compare movements over time using consistently prepared statements.
Ask your accountant how unusual balances or classification choices affect the calculation. Then pair the balance-sheet view with a dated cash forecast to understand the immediate operating position.
Sources & editorial notes
Sources checked October 23, 2026. The examples are illustrative and provide general information. Discuss how the guidance applies to your circumstances with your accountant.
Rules and guidance can change. Use the current official source and confirm the treatment for your facts. To flag an error, contact Sora.