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Definition – What is the Current Ratio?
The Current Ratio is a ratio of a company’s current assets to current liabilities.
A current ratio of ‘1’ means that the company has the same amount of current assets and current liabilities.
A current ratio of more than ‘1’ means that the company has more current assets than current liabilities. A current ratio of ‘2’ means that there are twice as many current assets.
A current ratio of less than ‘1’ means that the company has more current liabilities. A current ratio of ‘0.5’ means that there are twice as many current liabilities.
Formula – How to calculate Current Ratio
Current Ratio = Current Assets / Current Liabilities
Example
A company has current assets of $10,000 and current liabilities of $5,000.
Current ratio = $10,000 / $5,000 = 2.00
Therefore, this company’s current ratio is 2.00.
Sources and more resources
- Accounting Tools – Current Ratio – An explanation of the current ratio and its calculation.
- Wikipedia – Current Ratio – A short overview of current ratio. Includes the formula.
- Investopedia – Current Ratio – Information on how to interpret current ratio.