Your current ratio, a comparison of current assets to current liabilities, will be particularly important to you if you're thinking of borrowing money or getting credit from one of your suppliers. Potential creditors use this ratio to measure a company's liquidity or ability to pay off short-term debts. Though acceptable ratios may vary from industry to industry, a current ratio of 2.00:1 is considered the norm.
The formula: Current assets divided by current liabilities.
|How to use this calculator|
You'll find the numbers you need to calculate your company's current ratio on the balance sheet of your latest financial statement.
Now you know where you stand and have a basis for comparison with previous years. Changes in a company's current ratio over a period of years can point out problems and successes. A declining current ratio could be pointing to financial problems. An improving ratio could be the result of a brighter financial picture or an overstocked warehouse (inventory is considered an asset). The key here is to find out why a ratio has changed.