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 is calculated by dividing current assets by 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 pay off its current liabilities with its current assets.

3. Importance of Current Ratio

Details: A higher ratio indicates better short-term financial health. A ratio below 1 suggests potential liquidity problems, while a very high ratio may indicate inefficient use of assets.

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, but this varies by industry.

Q2: How does current ratio differ from 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 working capital.

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

Q5: Does current ratio vary by industry?
A: Yes, acceptable ratios differ significantly between industries due to varying business models.