How to Calculate the Current Ratio in 2 Minutes Using AI

The current ratio (aka, the ‘working capital’ ratio) is a ratio that measures a company’s ability to pay off its short-term obligations. It is a liquidity ratio,  representing how the company can pay off its current debts with its current assets.

The current ratio exists on the balance sheet, and you can calculate it by dividing the company’s current assets by its current liabilities. Analysts reviewing the current ratio will evaluate how likely the company could default or face liquidity issues. They will also benchmark the company’s current ratio to the industry average. 

According to Business Insider, a healthy current ratio might fall between 1 and 3. A value of less than 1 indicates that the company does not have enough capital to meet its short-term obligations.

Overall, the current ratio is simple to calculate, offering significant insights into the company’s financial health.

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In contrast to more complex financial ratios (e.g. Economic Value Added/EVA), the current ratio is not difficult to calculate. Of course, repeatedly calculating the current ratio for a high volume of financial statements might prove tedious.

You could use an Excel formula to calculate the current ratio automatically based on inputted data. However, that still requires the user to copy and paste the information manually from the financial statement into a spreadsheet.

Let’s examine two ways to automate this process – in two minutes or less.

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Though ChatGPT does not have the skills of an experienced financial advisor, it can still capture data from PDFs or images of financial statements, leveraging it to calculate financial ratios.

How does it work?

Step 1

Upload the balance sheet.

Step 2

Prompt (clearly), e.g. ‘What is the current ratio of this balance sheet?’

Step 3

Review the accuracy of the output.

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How much time does it take? 

It took 39 seconds to (accurately) calculate the current ratio of this balance sheet (i.e. page 51 of Alphabet’s 2023 annual report). Although, in fairness, I am a slow typist.

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Pros:

• It’s free, although the document upload limit is three per day on a Free Plan. Paid users leveraging their GPT-4o model can upload up to 80 documents every 3 hours.

Cons:

• ChatGPT can produce inaccurate data (i.e. ‘hallucinations’). The problem is that the data is likely to seem plausible. Therefore, copying and pasting ChatGPT’s output without confirmation could result in erroneous data going unchecked. Unchecked, inaccurate data can lead to compromised decision-making and potentially fines or reputational damage.
• With the document upload limits, calculating the current ratio from multiple sources is likely time-consuming, particularly as we recommend splitting the prompts into separate functions to achieve the best performance. For example, it’s better prompting practice to submit ‘Extract the current assets and liabilities from these balance sheets PDF’ and then ‘Calculate the current ratios’ rather than just ‘Calculate the current ratios’.

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We developed Financial Statements AI – a tool that extracts and structures data from balance sheets and income statements. 

Though Financial Statements AI doesn’t calculate the ratio data directly, it provides the input data for ratios. Consequently, it can cut the current ratio calculation for a large volume of financial statements from hours to minutes.

How does it work?

It’s easy: just upload the financial statement, as in a quarterly or annual report, and the tool will extract the line items and structure the data. 

The structured data will contain metrics, such as the current assets and liabilities. You can then download the data into an Excel spreadsheet – ready for review.

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How much time does it take? 

It took just 41 seconds to (accurately) calculate the current ratio of the same balance sheet we tested on ChatGPT.

Pros:

• Financial Statements AI is based on commercial Large Language Model (LLM) technology like ChatGPT but combined with open-source and proprietary technology that increases its accuracy.
• In addition to current liabilities and assets, Financial Statements AI computes other key metrics, such as retained earnings, shareholder’s equity, common stock, etc.

Cons:

• You will need to calculate the current ratio from the downloaded data in Excel.
• Like ChatGPT, further use will require a fee after reaching the limit of the free version.

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There are three ways to calculate the current ratio: doing it manually, using an AI virtual agent (e.g. ChatGPT/Gemini/Claude) or using Financial Statements AI. The best way will depend on your firm’s priorities.

If you aren’t overly concerned about accuracy, you may wish to experiment with ChatGPT using a couple of financial statements. Otherwise, if you’re looking for an enterprise-standard financial tool, try Financial Statements AI for free now.

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