Current Ratio

The current ratio may be the most common calculation used to measure liquidity.

Definition Current Ratio equals Current Assets divided by Current Liabilities
Current assets include cash, accounts receivable less any allowance for uncollectable accounts, marketable securities, and other assets that are expected to be converted into cash within a year.
Current liabilities include accounts payable, accrued liabilities, taxes and other liabilities that are due within a year.
Current Ratio Calculator
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Current Liabilities $
Current Ratio

Working with your current ratio

Every industry and every business is different, but generally a current ratio of at least 2 to 1 is considered good. It is also important to understand how the components of the ratio can affect how your business is actually performing. Increases in accounts receivable and corresponding decreases in cash will not change the ratio, but may a bad sign. Likewise, an increase in inventory beyond what is needed may not be an effective use of your assets.

By monitoring changes in your current ratio over time, you can better understand the financial dynamics of your business and run it more effectively. Here is a worksheet you can use to track changes in this and other important measures.