Free Current Ratio Calculator

Use the free current ratio calculator below to get a clear understanding of the relationship between your current assets and current liabilities. This is an important metric that creditors will use to judge your ability to pay off short-term obligations.

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Current Assets
Current Liabilitiese
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Result

Total Ratio

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The Importance of the Current Ratio

The current ratio can be used as a simple way to understand your solvency or ability to meet short term obligations. You calculate it by taking your current liquid assets and dividing it by your current liabilities. The assets and liabilities are short term such as cash on hand, inventory, accounts payable, and short term debt. 

Put another way, it's a ratio that measures whehter you have enough money and assets to cover the debts that will come due in the near future.

Why the Current Ratio Matters

1. Assess Your Liquidity

A good current ratio signals that you can easily cover short term liabilities. 

The higher the number, the better position you're in but you should have a 1 at the very least which shows you can fully cover your liabilities with your liquid assets. This is a good sign. 

Anything lower than one may be a sign of potential cash-flow issues. 

2. Builds Confidence with Investors and Lenders

While it's not a 'true' financial metrics like your gross revenue is, it's a gauge of business health nonetheless. The better the current ratio is, the more confident investors and lenders are that you ahve a solid business on your hands. 

It shows you’re capable of handling your debts without scrambling for external funding, which can make your company more attractive when seeking financing or investment.

3. Helps Prevent Financial Strain

By understanding your current ratio and analyzing it on a regular basis, you can spot liquidity issues before they become big problems.  

As soon as the current ratio starts to reduce, take the time to figure out why. If it's because of a larger one-off purchase then it may be nothing, but if it's because expenses are increasing or some other reason, you may want to assess whether you'll need to make any changes. 

4. Guides Decision-Making

For business owners, the current ratio can serve as a valuable tool in making financial decisions. 

If the current ratio dips too low, it might signal the need to reduce expenses or improve cash flow management to avoid financial stress.


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DoxFlowy is not a law firm, and does not provide legal services, advice, or representation. Some product imagery is for illustrative purposes only and the actual product experience may differ.‍

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