# Current Ratio Calculator

## Related Converters

Current ratio calculator helps you evaluate the short-term financial health of a business or entity by calculating its current ratio. This tool helps you assess a company’s ability to handle immediate financial responsibilities which provides insights into liquidity and financial stability.

## How to use this current ratio calculator?

Enter the values of the Current Liabilities and Current Assets in the given field

Press the Calculate button

The calculator will instantly provide you with the results of your current ratio along with step by step-by-step solutions.

## What is a current ratio?

The current ratio of a company is a liquidity ratio that measures the ability to pay short-term obligations or those due within a year.

A higher current ratio indicates a better ability to cover short-term obligations, while a lower ratio may suggest potential financial challenges. It's also known as the working capital ratio.

## How to calculate the current ratio?

Calculating the current ratio is simple, just divide a company's current assets by its current liabilities. Current assets are items expected to turn into cash within a year, while current liabilities are obligations due within the same timeframe.

To calculate the current ratio, you can use the formula, such as:

Current ratio = Current assets / Current liabilities

### Example of current ratio:

Suppose a company has the following financial information:

• Current assets: \$150,000
• Current liabilities: \$100,000

Now, add these values to the current ratio formula:

• Current ratio = 150,000 / 100,000
• Current ratio = 1.5

In this scenario, the current ratio is 1.5 which indicates that the company has \$1.50 in current assets for every \$1.00 in current liabilities. A current ratio above 1 suggests the company can cover its short-term obligations.

## How to calculate the current ratio using a balance sheet?

Here's a step-by-step guide on how to obtain the necessary information from a balance sheet:

### 1. Locate the Current Assets:

Current assets are assets that are expected to be converted into cash or used up within one year.

Common current assets include:

• Cash and cash equivalents
• Accounts receivable
• Inventory
• Short-term investments

### 2. Identify the Current Liabilities:

Current liabilities are obligations that are due within one year.

Common current liabilities include:

• Accounts payable
• Short-term debt
• Accrued liabilities

### 3. Retrieve the Values:

Look at the balance sheet and find the values for total current assets and liabilities.

### 4. Apply the Formula:

Add the values into the current ratio formula:

• Current ratio = Current assets / Current liabilities

### 5. Calculate:

Perform the division to get the current ratio.

For example, if the balance sheet indicates total current assets of \$130,000 and total current liabilities of \$80,000:

• Current Ratio = 130,000 / 80,000
• Current Ratio = 1.625

## What is a good current ratio?

A current ratio between 1.2 to 2 is generally considered good. It indicates that a company has more current assets than current liabilities

## Why current ratio is important?

The current ratio is like a health check for a company. It helps investors see if a company can easily pay its short-term debts using what it owns. By comparing this ratio with other companies, investors can judge how financially strong a company is and make smart investment choices.

## What is the difference between the current ratio and the quick ratio?

Let's take a closer look at the chart below for a better understanding:

Current Ratio vs Quick Ratio

## Current Ratio vs Quick Ratio

Features Current Ratio Quick Ratio
Focus Includes all current assets. Considers only quick or liquid assets (cash, equivalents, accounts receivable).
Interpretation Offers a broader view of short-term liquidity. Stricter view of immediate ability to pay short-term debts .
Ideal ratio Generally above 1.5 Generally above 1
Industry sensitivity More industry-dependent Less industry-dependent
Timeframe Provides a broader, long-term perspective (a year or longer). Provides short-term insights (about three months).