Enter the total current assets of your business or individual, as well as the total liabilities to calculate the current ratio. The current ratio is a measure of the liquidity of a business.

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## Current Ratio Formula

The current ratio of a business can be calculated with the following equation:

CR = CA / CL

- Where CR is the current ratio
- CA is current assets ($)
- CL is current liabilities ($)

Where assets and liabilities are measured in currency and the ratio is unitless.

## What is a Current Ratio?

A current ratio is a metric used to assess a company’s ability to pay off its short-term liabilities with its short-term assets. It is calculated by dividing the total current assets of a company by its total current liabilities. This ratio represents the company’s liquidity position and indicates its ability to meet its short-term obligations.

A high current ratio suggests a company has enough assets to cover its current liabilities, indicating a strong liquidity position. This implies that the company is well-prepared to handle its short-term financial obligations, such as paying off creditors or meeting operating expenses. On the other hand, a low current ratio may indicate a potential risk of financial instability, as the company may struggle to meet its short-term obligations.

The current ratio is important for investors, creditors, and management as it provides insights into a company’s financial health and ability to manage short-term obligations. It helps investors gauge the company’s ability to generate sufficient cash flows to cover its immediate liabilities. Creditors also use the current ratio to assess the risk of extending credit to the company.

## How to calculate the current ratio?

Let’s look at an example of how current ratio is calculated.

- Let’s assume you an owner of a business. First, you need to calculate your total assets. This includes all types of assets, including cash, physical goods, property, etc. Once we calculate this, we find your business has $100,000.00 in assets.
- Next, we need to calculate the total liabilities of your company. This includes debts, loans, outstanding payments, etc. We find your company has $50,000.00 in liabilities.
- Finally, we need to divide assets by liabilities and we find you have a current ratio of 2.0. That’s great! You’re in good shape.

## FAQ

**What is current ratio?**

A current ratio, as mentioned previously, is a measure of the liquidity of a business. The liquidity of a business the measure of how easy it is for a business to fulfill its current obligations.