1. What is 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 Is Current Ratio Calculated?

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: A ratio above 1 indicates the company has more current assets than current liabilities. A ratio below 1 may indicate liquidity problems. However, ideal ratios vary by industry.

4. Using the Calculator

Tips: Enter current assets and current liabilities in dollars. 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, but this varies by industry. Some industries operate safely with lower ratios.

Q2: What's the difference between current ratio and quick ratio?
A: Quick ratio 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 inefficient use of current assets or poor working capital management.

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 current ratio vary by company size?
A: While the calculation is the same, interpretation may differ based on company size, industry, and business model.