1. What is the Current Ratio?

The Current Ratio is a liquidity ratio that measures a company's ability to pay short-term obligations or those due within one year. It compares a firm's current assets to its current liabilities.

2. How Does the Calculator Work?

The calculator uses the Current Ratio formula:

Where:

• Current Assets — Cash and other assets that are expected to be converted to cash within a year
• Current Liabilities — Debts or obligations due within one year

Explanation: The ratio indicates how many times a company can pay off its current liabilities with its current assets.

3. Importance of Current Ratio

Details: A ratio above 1 indicates the company has more current assets than current liabilities, suggesting good short-term financial health. A ratio below 1 may indicate liquidity problems.

4. Using the Calculator

Tips: Enter current assets and current liabilities in GBP. Both values must be positive, and current liabilities cannot be zero.

5. Frequently Asked Questions (FAQ)

Q1: What is a good current ratio?
A: Generally, a ratio between 1.5 and 3 is considered healthy, but this varies by industry.

Q2: Can the current ratio be too high?
A: Yes, an excessively high ratio may indicate inefficient use of current assets or poor working capital management.

Q3: How does this differ from the quick ratio?
A: The quick ratio excludes inventory from current assets, providing a more conservative measure of liquidity.

Q4: Should this ratio be used alone?
A: No, it should be used in conjunction with other financial ratios and metrics for a complete picture.

Q5: How often should this ratio be calculated?
A: For businesses, it should be calculated regularly (monthly or quarterly) as part of financial monitoring.