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Current Ratio

Source: R/get-current-ratio.R
get_current_ratio.Rd

Measures short-term liquidity by comparing current assets to current liabilities.

Formula:

cr = current_assets / current_liabilities

current_assets      = cash + savings + pledges_receivable + accounts_receivable
                      + investment_sales + prepaid_expenses
current_liabilities = accounts_payable + grants_payable

Definitional Range

The current ratio is bounded below at zero and unbounded above. Values below 1.0 mean current liabilities exceed current assets. The empirical range for nonprofits is approximately [0, 15], with most organizations clustered between 0.5 and 5.

Benchmarks and rules of thumb

  • 1.0: Conventional adequacy threshold – liabilities exactly covered.

  • Below 0.5: Indicates acute short-term risk (Tuckman & Chang 1991).

  • Above 3.0-4.0: May indicate excess cash or slow receivables collection.

  • Sector medians generally fall in the [1.0, 2.5] range (Zietlow et al. 2007).

Calculated For: 990 + 990EZ filers.

Usage

get_current_ratio( df,
  cash                = "F9_10_ASSET_CASH_EOY",
  savings             = "F9_10_ASSET_SAVING_EOY",
  pledges_receivable  = "F9_10_ASSET_PLEDGE_NET_EOY",
  accounts_receivable = "F9_10_ASSET_ACC_NET_EOY",
  investment_sales    = "F9_10_ASSET_INV_SALE_EOY",
  prepaid_expenses    = "F9_10_ASSET_EXP_PREPAID_EOY",
  accounts_payable    = "F9_10_LIAB_ACC_PAYABLE_EOY",
  grants_payable      = "F9_10_LIAB_GRANT_PAYABLE_EOY",
  numerator = NULL, denominator = NULL, winsorize = 0.98 ,
  range     = "zp",
  sanitize  = TRUE,
  summarize = FALSE )

Arguments

df

A data.frame containing the fields required for computing the metric.

cash

Cash on hand, EOY.

savings

Short-term investments (savings), EOY.

pledges_receivable

Net pledges and grants receivable, EOY.

accounts_receivable

Accounts receivable, net, EOY.

investment_sales

Investments held for sale or use, EOY.

prepaid_expenses

Prepaid expenses and deferred charges, EOY.

accounts_payable

Accounts payable and accrued expenses, EOY.

grants_payable

Grants and similar amounts payable, EOY.

numerator

Optional. A pre-aggregated column name for current assets, bypassing the individual asset arguments. Cannot be combined with those arguments.

denominator

Optional. A pre-aggregated column name for current liabilities, bypassing accounts_payable and grants_payable. Cannot be combined with those arguments.

winsorize

The winsorization value (between 0 and 1), defaults to 0.98, which winsorizes at the 1st and 99th percentiles.

range

Character string specifying the theoretical range of the ratio, used to set winsorization bounds. Default "zp". Options: "np" (negative to positive), "zp" (zero to positive), "zo" (zero to one), "nz" (negative to zero), or a custom "lo;hi" pair (e.g. "0;10").

sanitize

Logical (default TRUE). If TRUE, NA values in the financial input columns are imputed to zero before the ratio is computed, respecting form scope: Part X and VIII/IX fields (990 only) are imputed only for 990 filers; Part I summary fields (990 + 990EZ) are imputed for all filers. The returned dataframe always contains the original unmodified input columns.

summarize

Logical. If TRUE, prints a summary() of the results and plots density curves for all four output columns (raw, winsorized, z-score, percentile). Defaults to FALSE.

Value

Object of class data.frame: the original dataframe appended with four new columns:

- `current`   - current ratio (raw)
- `current_w` - winsorized version
- `current_z` - standardized z-score (based on winsorized values)
- `current_p` - percentile rank (1-100)

Details

Primary uses and key insights

The current ratio is the most widely used measure of short-term liquidity in both commercial and nonprofit finance. It asks whether an organization has sufficient near-term assets to meet its near-term obligations without requiring asset sales, additional borrowing, or emergency fundraising. For nonprofits it is particularly important as a stress-test, because grant revenue often arrives in irregular cycles that do not align with payroll and vendor payment schedules.

Unlike the quick ratio (get_quick_ratio()), the current ratio includes prepaid expenses and investments held for sale, making it a somewhat more generous (and less conservative) measure of liquidity. In practice for nonprofits, the two ratios often move together since prepaid expenses are rarely a large share of assets.

Formula variations and their sources

The standard commercial definition (current assets / current liabilities) uses balance sheet categories that are explicitly labelled as current. The 990 balance sheet (Part X) does not use current vs. non-current labels. This implementation follows the operationalization in Tuckman & Chang (1991) and subsequent studies by defining:

  • Current assets: cash + savings + pledges receivable + accounts receivable + investments held for sale + prepaid expenses (Part X lines 1, 2, 3, 4, 8, 9).

  • Current liabilities: accounts payable + grants payable (Part X lines 17, 18). Mortgage and note obligations are excluded as long-term.

Some analysts also include inventory (Part X line 11) in current assets, but that line is not widely populated in nonprofit 990 filings and is excluded here.

Why this formula was chosen

The asset components selected are the most reliably current items available on the 990 balance sheet. The liability components exclude long-term debt, which matches the intent of the current ratio (near-term coverage) while working within the structural constraints of the 990. This formulation is consistent with the majority of nonprofit financial health studies and the NCCS financial indicators project.

Canonical citations

  • Tuckman, H.P. & Chang, C.F. (1991). A methodology for measuring the financial vulnerability of charitable nonprofit organizations. Nonprofit and Voluntary Sector Quarterly, 20(4), 445-460.

  • Greenlee, J.S. & Trussel, J.M. (2000). Predicting the financial vulnerability of charitable organizations. Nonprofit Management and Leadership, 11(2), 199-210.

  • Zietlow, J., Hankin, J.A. & Seidner, A. (2007). Financial Management for Nonprofit Organizations. Wiley.

Variables used:

  • F9_10_ASSET_CASH_EOY: Cash on hand, EOY (cash)

  • F9_10_ASSET_SAVING_EOY: Savings and short-term investments, EOY (savings)

  • F9_10_ASSET_PLEDGE_NET_EOY: Net pledges receivable, EOY (pledges_receivable)

  • F9_10_ASSET_ACC_NET_EOY: Accounts receivable, net, EOY (accounts_receivable)

  • F9_10_ASSET_INV_SALE_EOY: Investments held for sale, EOY (investment_sales)

  • F9_10_ASSET_EXP_PREPAID_EOY: Prepaid expenses and deferred charges, EOY (prepaid_expenses)

  • F9_10_LIAB_ACC_PAYABLE_EOY: Accounts payable and accrued expenses, EOY (accounts_payable)

  • F9_10_LIAB_GRANT_PAYABLE_EOY: Grants and similar amounts payable, EOY (grants_payable)

Examples

library( fiscal )
data( dat10k )

d <- get_current_ratio( df = dat10k )
#>    :: Current liabilities equal to zero :: 2,379 case(s) replaced with NaN
head( d[ , c( "current", "current_w", "current_z", "current_p" ) ] )
#>        current   current_w  current_z current_p
#>          <num>       <num>      <num>     <int>
#> 1:          NA          NA         NA        NA
#> 2:         NaN         NaN        NaN        NA
#> 3: 41.98405121 41.98405121  0.9208181        72
#> 4:          NA          NA         NA        NA
#> 5:  0.06378109  0.06378109 -0.9100026         2
#> 6:          NA          NA         NA        NA