Calculator
Data Source and Methodology
All calculations are based on the formulas and data from the Financial Accounting Standards Board (FASB) guidelines, ensuring accuracy and reliability.
The Formula Explained
Glossary of Variables
- Current Assets: Assets that are expected to be converted into cash within a year.
- Current Liabilities: Obligations due to be settled within a year.
- Current Ratio: A liquidity ratio that measures a company's ability to pay short-term obligations.
How It Works: A Step-by-Step Example
Suppose a company has current assets of $150,000 and current liabilities of $100,000. The current ratio is calculated as follows:
This means the company has $1.50 in current assets for every $1 of current liabilities, indicating good liquidity.
Frequently Asked Questions (FAQ)
What is a good current ratio?
A current ratio between 1.2 and 2 is generally considered healthy, indicating the company can pay its short-term liabilities with its short-term assets.
Why is the current ratio important?
The current ratio is critical for assessing a company's short-term financial health and its ability to pay off short-term obligations.
How often should I calculate the current ratio?
It is advisable to calculate the current ratio quarterly to monitor financial stability regularly.
What does a current ratio below 1 indicate?
A current ratio below 1 suggests that a company may face liquidity issues as it has more liabilities than assets.
Can the current ratio be too high?
Yes, a very high current ratio might indicate inefficient use of resources, as excessive assets are not being invested to generate returns.
Formula (LaTeX) + variables + units
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Current Ratio = \(\frac{\text{Current Assets}}{\text{Current Liabilities}}\)
Current Ratio = \(\frac{150,000}{100,000} = 1.5\)
- No variables provided in audit spec.
- NIST — Weights and measures — nist.gov · Accessed 2026-01-19
https://www.nist.gov/pml/weights-and-measures - FTC — Consumer advice — consumer.ftc.gov · Accessed 2026-01-19
https://consumer.ftc.gov/
Last code update: 2026-01-19
- Initial audit spec draft generated from HTML extraction (review required).
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