Home
Back
Current Ratio Formula:
| From: | To: |
The Current Ratio is a liquidity ratio that measures a company's ability to pay short-term obligations or those due within one year. It is calculated by dividing current assets by current liabilities.
The calculator uses the Current Ratio formula:
Where:
Explanation: The ratio indicates how many times a company's current assets can cover its current liabilities. A higher ratio suggests better short-term financial health.
Details: The Current Ratio is a key indicator of financial health used by investors, creditors, and analysts to assess a company's short-term liquidity and ability to meet its obligations.
Tips: Enter current assets and current liabilities in dollars. Both values must be positive numbers greater than zero for accurate calculation.
Q1: What is considered a good current ratio?
A: Generally, a current ratio between 1.5 and 3 is considered healthy. A ratio below 1 may indicate liquidity problems, while a ratio above 3 might suggest inefficient use of assets.
Q2: How does current ratio differ from quick ratio?
A: The quick ratio (acid-test ratio) is more conservative as it excludes inventory from current assets, providing a stricter measure of liquidity.
Q3: Can current ratio be too high?
A: Yes, an excessively high current ratio may indicate that a company is not using its current assets efficiently or is not investing excess cash productively.
Q4: How often should current ratio be calculated?
A: It should be calculated regularly, typically each quarter or fiscal year, to monitor changes in a company's liquidity position over time.
Q5: Does industry affect what's considered a good current ratio?
A: Yes, optimal current ratios vary by industry due to different business models, inventory turnover rates, and payment terms.