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Current Ratio Formula:
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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 indicates the financial health of a company and is calculated by dividing current assets by current liabilities.
The calculator uses the Current Ratio formula:
Where:
Explanation: The ratio indicates how many times a company's current assets can cover its current liabilities. A higher ratio suggests better short-term financial health.
Details: The Current Ratio is a key indicator of a company's short-term liquidity position. It helps creditors and investors assess the company's ability to meet its short-term obligations.
Tips: Enter current assets and current liabilities in dollars. Both values must be positive numbers greater than zero.
Q1: What is a good Current Ratio?
A: Generally, a Current Ratio between 1.5 and 3 is considered healthy. A ratio below 1 may indicate liquidity problems, while a ratio above 3 might suggest inefficient use of assets.
Q2: How does Current Ratio differ from Quick Ratio?
A: The Quick Ratio is more conservative as it excludes inventory from current assets, providing a stricter measure of liquidity.
Q3: Can Current Ratio be too high?
A: Yes, an excessively high Current Ratio may indicate that a company is not using its current assets efficiently or is not investing excess cash.
Q4: How often should Current Ratio be calculated?
A: It's typically calculated quarterly or annually as part of financial statement analysis, but can be monitored more frequently for internal management purposes.
Q5: Does industry affect what's considered a good Current Ratio?
A: Yes, ideal Current Ratio values can vary significantly by industry due to different business models and working capital requirements.