1. What is the Current Ratio?

The Current Ratio (CR) is a liquidity ratio that measures a company's ability to pay short-term obligations or those due within one year. It compares current assets to current liabilities.

2. How Does the Calculator Work?

The calculator uses the Current Ratio formula:

Where:

• \( Current\ Assets \) — Assets expected to be converted to cash within one year (currency)
• \( Current\ Liabilities \) — Obligations due within one year (currency)
• \( CR \) — Current Ratio (dimensionless)

Explanation: The ratio indicates how many times current assets cover current liabilities. Higher values suggest better short-term financial health.

3. Importance of Current Ratio

Details: The Current Ratio is crucial for assessing a company's short-term liquidity position. Creditors and investors use it to evaluate financial risk.

4. Using the Calculator

Tips: Enter current assets and current liabilities in the same currency units. 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: 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 poor working capital management or excess inventory.

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 industry?
A: Yes, acceptable ratios differ across industries due to varying business models and operating cycles.