Answers the Question
How easily can a company cover its short-term costs?
Calculator for Current Ratio
What Is the Current Ratio?
This formula examines whether or not a firm has more funds than obligations (in the short term).
Why Is it Important?
- Knowing if a company has sufficient funds to cover unexpected problems or take advantage of unexpected opportunities will reveal whether or not a company can deal with uncertainty.
- When current liabilities are quite low, the current ratio can vary wildly with small shifts in economic numbers.
Formula(s) to Calculate Current Ratio
- CURRENT RATIO = CURRENT ASSETS / CURRENT LIABILITIES
- More isn't always better. If a company has a lot of current assets, that may mean that it's not investing its funds efficiently.