Dr. Paul Borosky, DBA, MBA
Business Consultant & Author
Guide 24 of 34 · Financial Ratios
What Are Liquidity Ratios? (Apple Example)
The next 12 months. Can the bills get paid?
Liquidity ratios measure short-term survival. Four of them do the job: the current ratio, the quick ratio, the cash ratio, and net working capital. Run all four on Apple and you get a surprise: a company with $112 billion of profit and negative working capital. This guide shows each formula, the five-year numbers, and how to read them together.
Last Updated: 10/27/2026 · Written by Dr. Paul Borosky, DBA, MBA
The Short Answer
What Are Liquidity Ratios?
Textbook Definition
Liquidity ratios measure a company’s ability to meet its short-term obligations, those due within one year, using its short-term assets. The most common are the current ratio, quick ratio, cash ratio, and net working capital.
In Plain English
Think of your own bills. You need enough money coming in to cover what is due this month. A company is the same, just over 12 months. Liquidity ratios compare what it can turn into cash this year with what it owes this year.
Cash Ratio
(Cash + Short-Term Investments) ÷ Current Liabilities
Apple, fiscal 2025: 0.33
Net Working Capital
Current Assets − Current Liabilities
Apple, fiscal 2025: −$17.7B
The other two, the current ratio and quick ratio, get their own deep dive in the next guide. All four use the same denominator: current liabilities from the balance sheet.
One Real Company
Apple’s Liquidity Ratios, 2021 to 2025
All four slid over five years. Apple went from a positive cushion to a negative one, and from 50 cents of cash per dollar of short-term bills to 33 cents.
| Ratio | 2025 | 2024 | 2023 | 2022 | 2021 |
|---|---|---|---|---|---|
| Current ratio | 0.89 | 0.87 | 0.99 | 0.88 | 1.07 |
| Quick ratio | 0.86 | 0.83 | 0.94 | 0.85 | 1.02 |
| Cash ratio | 0.33 | 0.37 | 0.42 | 0.31 | 0.50 |
| Net working capital ($M) | (17,674) | (23,405) | (1,742) | (18,577) | 9,355 |
| Cash + short-term investments ($M) | 54,697 | 65,171 | 61,555 | 48,304 | 62,639 |
| Current liabilities ($M) | 165,631 | 176,392 | 145,308 | 153,982 | 125,481 |
Source: Apple Form 10-K filings, fiscal 2021 to 2025, as analyzed in the book.
The Method
How to Read Liquidity Ratios in 5 Steps
Start loose, then tighten.
Current ratio counts every current asset. Quick ratio drops inventory. Cash ratio keeps only cash and short-term investments. Each test is stricter than the last.
Turn the ratio into dollars.
Net working capital says the same thing as the current ratio in dollars. Apple’s swung from +$9.4 billion to −$17.7 billion.
Read the five-year direction.
Apple’s cash ratio drifted from 0.50 to 0.33. Less idle cash, but also a thinner safety net.
Check the cash engine.
A thin cushion is survivable when operating cash is huge and steady. Apple’s brought in $111.5 billion in fiscal 2025.
Compare to a rival and the industry.
Grocers and retailers often run below 1. Ask what is normal for the business before calling it weak.
A Choice, Not a Crisis
Apple’s liquidity fell because it chose to send cash to shareholders instead of stockpiling it, not because sales dried up. For almost any other company, negative working capital would worry an analyst. For a business that collects cash this fast, it is manageable. The same numbers at a small company with uneven sales would be a real warning.
Compare It
Apple vs. Microsoft: A Thin Cushion and a Thick One
| Latest fiscal year | Apple | Microsoft |
|---|---|---|
| Current ratio | 0.89 | about 1.3 |
| Quick ratio | 0.86 | about 1.3 |
| Cash ratio | 0.33 | about 0.67 |
| Net working capital | −$17.7B | about +$50B |
From the book’s comparisons. Microsoft’s fiscal year ends in June.
Microsoft keeps about twice Apple’s cash relative to its short-term bills. Neither company is at any risk. Microsoft is simply the more conservatively cushioned of the two.
Beginner Traps
What Do Beginners Get Wrong About Liquidity Ratios?
- Reading only the current ratio and skipping the stricter tests.
- Treating a cash ratio under 1 as a problem. Very few companies hold that much cash.
- Forgetting net working capital is the current ratio in dollars.
- Calling negative working capital fatal without checking cash flow.
- Comparing a software company to a retailer without adjusting.
- Ignoring a five-year slide because this year still looks fine.
How the Book Grades Apple’s Liquidity
From the Book
Solvent for the Next Twelve Months?
Financial Ratios · Liquidity Ratios
The Short-Term Test
As financial analysts and investors, we need to make sure companies are financially solvent in the short term (over the next twelve months).
All four liquidity ratios, five years each, with Microsoft beside them and a grade on every one. It is in the book.
Get the Book on Amazon →Running a Small Business?
You cannot run on negative working capital the way Apple can. A slow month and a big bill can collide. Start with why profit is not cash, then put a forecast on it. Dr. Paul builds cash forecasts with owners as a part-time financial lead. See fractional CFO services.
Beyond the Book
Put These Numbers to Work on Your Own Business
The book teaches you to read the numbers. These three take you from reading them to using them.
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Liquidity Ratio Questions
What are the four main liquidity ratios?
What is a good cash ratio?
Is negative working capital bad?
Keep Going
Related Guides
Every formula on one page: the financial ratios cheat sheet.
Written by Dr. Paul Borosky, DBA, MBA, business consultant, author, and adjunct finance instructor with an MBA focused in finance.
This page is for general educational purposes only. It is not investment, financial, tax, accounting, or legal advice, and nothing here is a recommendation to buy or sell any security. Apple and Microsoft figures come from their public filings as analyzed in the book. Apple and Microsoft are trademarks of their respective owners, and this page is not affiliated with or endorsed by either company.