1. What is the Current Ratio?

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 compares a firm's current assets to its current liabilities.

2. How Does the Calculator Work?

The calculator uses the Current Ratio formula:

Where:

• Current Assets — Cash and other assets expected to be converted to cash within a year
• Current Liabilities — Debts and obligations due within one year

Explanation: The ratio indicates how many times a company can cover its current liabilities with its current assets.

3. Importance of Current Ratio

Details: This ratio is crucial for assessing a company's short-term financial health. Creditors and investors use it to evaluate liquidity risk and operational efficiency.

4. Using the Calculator

Tips: Enter current assets and current liabilities in the same currency. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good current ratio?
A: Generally, a ratio between 1.5 and 3 is considered healthy. Below 1 may indicate liquidity problems, while above 3 might suggest inefficient use of assets.

Q2: How does current ratio differ from quick ratio?
A: The quick ratio (acid-test) excludes inventory from current assets, providing a more conservative measure of liquidity.

Q3: Can current ratio be too high?
A: Yes, an excessively high ratio may indicate poor working capital management or idle resources that could be better utilized.

Q4: How often should current ratio be calculated?
A: It should be monitored regularly, typically quarterly or annually, as part of financial statement analysis.

Q5: Does industry affect current ratio interpretation?
A: Yes, optimal ratios vary by industry due to different business models and operating cycles.