How to Use Current Ratio Calculator
Enter the current assets.
Enter the current liabilities
How to calculate Current Ratio
Current Ratio Formula:
Current Assets/ Current Liabilities
- A furniture store is looking to get a loan. The bank asks for their balance sheet.
- On the Balance sheet the current assets are $47,000 with the current liabilities $60,000
- With this we use the formula above: 47,000/60,000 = 0.78
- Current ratio is 0.78, the furniture store can pay of 78 percent of its current liabilities, which shows that the store is very risky and highly leveraged.
- Banks general prefer a current ratio of at least 1 or 2 before giving a loan.
- Apple Inc's current assets in 2016 were 106,869 million and their current liabilities were 79,006 million
- Using the formula: 106,869 million/79,006 million = 1.35
- Their current ratio for 2016 was 1.35
- This shows that Apple's ability to pay its short term debt is fine
Current ratio is used to measure a company's ability to its bills (short term liabilities). To calculate the company's current ratio, the current total assets and the current total liabilities are needed. Current Ratio can also be known as the working capital ratio.
The current ratio gives you an indication of a company's financial health by calculating the company's ability to pay back its liabilities( debt ) with its current assets . .
In the Generally Accepted Accounting Principles, companies split their long-term assets and liabilities on a balance sheet. This gives any investors and creditors a way to calculate the current ratio.
Current Assets: Cash, Marketable securities, Receivables, Inventory
Quick Assets: Cash, Marketable securities, Receivables
Note: Current Assets include inventory.
A current ratio above 1 means the company can easily make the current debt payments. For example a current ratio of 3 shows that the company has 3 times more current assets then current liabilities. Although if the current ratio is too high such as 5 it may be a sign that the company is not using its assets efficiently or is not securing finance correctly.
If the current liabilities are growing faster then the current assets this usually means that the company is not making enough from its operations, essentially the company is losing money. It is a bad sign if the company has to sell fixed assets to pay of its debt.
Any current ratio under 1 means the current liabilities are greater then its current assets and is a sign that the company may not be able to pay off its debt if they were due at that point. A ratio under one does not always indicate that the company is going bankrupt they may, have a large income expected after its debts are due and be able to pay of its debt.