# Current Ratio Explained With Formula and Examples.

The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations. The current ratio is calculated by dividing a company's current assets by its current liabilities.

A company's ability to pay its short-term obligations is determined by its current assets, which include cash, accounts receivable, and inventory. A company's ability to pay its long-term obligations is determined by its long-term assets, which include property, plant, and equipment.

The current ratio is a important financial ratio because it provides insights into a company's ability to pay its obligations. For example, if a company has a current ratio of 2, it means that the company has twice as many current assets as current liabilities. This is generally considered to be a good thing because it means that the company is in a strong financial position and is unlikely to default on its obligations.

However, it is important to note that a high current ratio does not necessarily mean that a company is financially healthy. For example, a company may have a high current ratio because it is not investing its cash properly or because it is carrying too much inventory.

The current ratio is just one of many financial ratios that can be used to assess a company's financial health. Other important financial ratios include the debt-to-equity ratio, the quick ratio, and the operating cash flow ratio. How do you calculate current ratio in Excel? To calculate the current ratio in Excel, you will need to use the following formula:

Current Ratio = Current Assets / Current Liabilities

For example, let's say that a company has \$1,000 in current assets and \$500 in current liabilities. The current ratio would be calculated as follows:

Current Ratio = \$1,000 / \$500

Current Ratio = 2.0

This means that the company has \$2.00 in current assets for every \$1.00 in current liabilities. What affects current ratio? There are several factors that can affect a company's current ratio. One is the mix of a company's assets and liabilities. For example, if a company has a lot of inventory or other assets that take a long time to convert to cash, its current ratio will be lower than if it had fewer of those types of assets. Another factor that can affect a company's current ratio is how quickly it pays its bills. If a company takes a long time to pay its suppliers, its current ratio will be lower than if it paid its bills more quickly. Is current ratio calculated in times? Current ratio is calculated by dividing a company's current assets by its current liabilities. This ratio is used to measure a company's ability to pay its short-term obligations with its current assets.

##### Why do we calculate current ratio?

Current ratio is a liquidity ratio that measures a company's ability to pay its current liabilities with its current assets. The current ratio is calculated by dividing a company's current assets by its current liabilities. A current ratio of 1.0 means that a company has an equal amount of current assets and current liabilities. A current ratio of less than 1.0 means that a company has more current liabilities than current assets. A current ratio of greater than 1.0 means that a company has more current assets than current liabilities.

Current ratio is used to assess a company's ability to pay its short-term liabilities with its short-term assets. The current ratio is a liquidity ratio, which means that it measures a company's ability to pay its short-term liabilities with its short-term assets. Current assets are assets that can be converted into cash within one year. Current liabilities are liabilities that are due within one year.

The current ratio is not a perfect measure of a company's liquidity, but it is a good general indicator. The current ratio does not take into account the company's long-term liabilities, which may be due after one year. The current ratio also does not take into account the company's ability to generate future cash flows.

The current ratio is a good general indicator of a company's liquidity, but it is not a perfect measure. The current ratio does not take into account the company's long-term liabilities, which may be due after one year. The current ratio also does not take into account the company's ability to generate future cash flows.

#### What is the formula for calculating current ratio?

The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations. The current ratio is calculated by dividing a company's current assets by its current liabilities. A company that has a current ratio of 1.5 or higher is considered to be financially healthy.