The current ratio is one of the most important liquidity metrics used in accounting and finance. It tells you whether a company can pay its short-term liabilities using its short-term assets.

This calculator makes it easy—just enter:

• Current Assets
• Current Liabilities

… and the calculator instantly returns the Current Ratio.

What Is the Current Ratio?

The current ratio shows how many times a company can cover its short-term debts using assets that can be converted to cash within a year.

A higher ratio means stronger liquidity.
A ratio below 1.0 indicates potential difficulty in paying short-term obligations.

Current Ratio Formula

$\text{Current Ratio}=\frac{\text{Current Assets}}{\text{Current Liabilities}}$

Worked Example — Step by Step

Given:

• Current Assets = $120,000
• Current Liabilities = $80,000

Step 1 — Apply the Formula

$\text{Current Ratio}=\frac{120000}{80000}$

Step 2 — Simplify

$\text{Current Ratio}=1.5$

Final Answer

$\text{Current Ratio}=1.5$

This means the company has 1.5 times more current assets than current liabilities, indicating healthy liquidity.

Interpretation Guide

FAQs About the Current Ratio

1. What is the current ratio used for?

The current ratio measures a company’s ability to pay short-term debts using its current assets. It helps investors, lenders, and business owners understand short-term financial health.

2. What is a good current ratio?

A ratio between 1.0 and 2.0 is generally considered healthy.

• Below 1.0 = possible liquidity problems
• Above 2.0 = very strong liquidity, but may indicate unused cash or inventory

3. What counts as current assets and current liabilities?

Current Assets include cash, receivables, inventory, prepaid expenses, etc.
Current Liabilities include short-term loans, accounts payable, salaries payable, taxes payable, etc.

4. Can a current ratio be too high?

Yes. A very high ratio (over 3.0) may mean the business is not using cash efficiently—money might be sitting idle instead of being invested or used to grow.

5. Is the current ratio better than the quick ratio?

Not always.
The quick ratio excludes inventory and is more conservative.
The current ratio is easier to compute and includes all current assets. Both are useful depending on the situation.