Solvency Ratio Calculator

What to enter

Take the figures straight from your most recent balance sheet. Current assets and current liabilities are the items due to convert to, or be paid in, cash within twelve months. Inventory is your stock on hand, which the quick ratio strips out because it can be slow to sell. Total debt and total equity drive the debt-to-equity ratio. Enter whatever figures you have, and the tool calculates each ratio independently, so a missing input only hides the ratios that depend on it.

How to calculate each solvency ratio

The calculator does the arithmetic for you, but the formulas are worth knowing — they are simple enough to sanity-check on the back of an envelope, and every lender and adviser you deal with will be using the same three.

Current ratio

Current ratio = Current assets ÷ Current liabilities

Everything you expect to turn into cash within twelve months, divided by everything due to be paid within twelve months.

Quick ratio

Quick ratio = (Current assets − Inventory) ÷ Current liabilities

The same test with stock stripped out — could you cover short-term debts without waiting for inventory to sell?

Debt-to-equity ratio

Debt-to-equity = Total debt ÷ Total equity

How much of the business is funded by borrowing rather than by the owners. Higher means more leveraged, and more exposed.

Benchmarks for Australian small businesses

The healthy ranges in the table above are general-purpose, and the right target for your business depends heavily on the industry you trade in. A services firm carrying no stock should expect its quick ratio to sit close to its current ratio, and has little excuse for either dipping below 1. A retailer or hospitality venue naturally holds much of its working capital as inventory, so a quick ratio well under 1 can be normal there — which makes the current ratio and the trend in it the more honest signal. Builders and trades businesses that invoice on progress claims often carry large receivables, which flatter the current ratio while the cash is still weeks away, so pair the ratio with a hard look at how old those receivables actually are. Capital-heavy businesses financing equipment will run structurally higher debt-to-equity than a consultancy, and that is fine while the repayments fit inside earnings. Two rules of thumb travel across all industries: compare yourself against businesses like yours rather than a universal number, and treat your own trend as the sharpest benchmark you have — a current ratio that has slid from 1.8 to 1.1 over four quarters is a louder warning than any single reading.

A worked example

Say a small wholesale business pulls these figures off its latest balance sheet: $30,000 in cash, $95,000 in receivables, and $55,000 in stock — $180,000 of current assets in all — against $150,000 of current liabilities. Total debt is $220,000 and total equity $160,000.

Read as a set: the current ratio of 1.20 clears the danger line but without much headroom, the quick ratio of 0.83 says the business can cover most — not all — of its short-term debts without selling stock, and a debt-to-equity of 1.38 is moderate leverage that needs watching if earnings soften. None of these numbers is a crisis on its own. The picture to avoid is all three drifting the wrong way at once, because that is how businesses slide from "tight month" to genuine trouble without any single reading ever looking alarming.

Reading your ratios

Together, these three ratios show whether your business can pay what it owes, both right now and over the longer term. The current and quick ratios measure short-term survival: whether you can cover the bills due in the next year, and whether you could still do so without selling stock. A current ratio under 1, or a quick ratio under 0.5, is the kind of result that warrants action this quarter rather than next year. Debt-to-equity measures how much of the business is funded by borrowing rather than owners' capital, and the higher it climbs, the more vulnerable you are to rising interest rates or a downturn. No single ratio tells the whole story, since a strong current ratio paired with very high leverage still carries risk. Read them as a set, compare them against the benchmarks above, and watch how they move over time. A ratio drifting the wrong way month after month is a clearer signal than any single reading. For the legal meaning of the terms behind these ratios — including what happens when a business can no longer meet its obligations — see our plain-English glossary of Australian insolvency terms. If the debt-to-equity result is the one that worries you, our guide to how much debt is too much for a small business looks at serviceability in detail, and if the liquidity ratios are the problem, trading while insolvent in Australia explains the duty that starts to matter once a business genuinely cannot pay its debts as they fall due.