Partner Logo
Home  > Current Ratio Calculator
 Share  Print Version  Email

Current Ratio Calculator

Simple Alliance, Kenya Limited


Definition

In business accounting, current ratio (liquidity ratio) refers to an important financial ratio. The aim of the ratio is to determine whether your business has adequate resources to settle its fiscal obligations over the next 12 months. These one-year debts are generally referred to as short-term obligations. Basically, the current ratio compares your business’ liabilities with its assets.    

Current Ratio Formula

Calculate your business’ current ratio by dividing your current assets by your current liabilities. 

Current Ratio = Current Assets/Current Liabilities

Purpose

Your current ratio measures your business’ overall liquidity.  The ratio could help you in estimating your business’ short-term fiscal status. This estimation will come in handy especially when you are:

  • Contemplating borrowing money
  • Planning to obtain credit from suppliers
  • Comparing your current position with your status in a period period 
  • Planning for future expansion

Liquidity

Basically, liquidity defines your business’ capacity to settle its short-range debts. This involves comparing your business’ most liquid assets with the business’ short-range liabilities. The liquidity of an asset is determined by its capacity to be quickly converted into cash. The liquidity of a business is thus a vital measure of fiscal sustainability.



Basics

Your liquidity calculation could give you two possible scenarios, namely:

  • High coverage ratio
  • Low coverage ratio
High Coverage Ratio

Generally, a bigger coverage or your current assets over your short-term liabilities is a positive liquidity sign. It indicates that your business is able to:

  • Settle its debts over the next one year
  • Finance its everyday  operations      
Low Coverage Ratio

With liquidity, a low coverage rate of your current assets over current liabilities is a warning sign. This scenario indicates that your business will not meet its fiscal obligations while maintaining its on-going operations without difficulties.   

Guiding Principles

The current ratio is pegged on a number of common standards, namely:

  • A high ratio figure indicates a highly liquid business
  • In case your business’ current assets are more than two times your current liabilities, your business is regarded as having excellent short-term fiscal strength
  • In case your business’ current liabilities exceed your current assets, your business could face problems with satisfying its short-term fiscal obligations    

A Handy Tool

The current world is increasingly becoming automated. This automation increases efficiency and saves time. You would surely prefer quick, accurate processes over long ones. Wouldn’t you? So as to automate your current ratio computation process, we have developed an easy to use calculator. The calculator is in the box below. It is labelled Current Ratio Calculator.  

Using the Current Ratio Calculator

The current ratio calculator is designed to make your worth both fun and efficient.  To compute your current ratio figure, follow the below simple steps:

  • Obtain the relevant asset and liability figures from your business’ latest balance sheet
  • In the box beside Current Assets, key in your total current asset figure
  • Inside the box next to Current Liabilities, key in your total current liabilities
  • Click the button labelled Calculate

Your current ratio establishes how your current assets cover your current liabilities. You obtain the liquidity ratio by dividing your business’ current assets with your current liabilities. The result gives the liquidity of a business. The ratio determines whether or not your business is able to meet its short-term fiscal obligations while at the same time maintaining day-to-day operations.  You can use the current ratio formula to compute the figure. The above current ratio calculator will help you to efficiently compute your ratio in a timely manner. Just insert the relevant liability and asset figures and select calculate.

Copyright (C) 2016, Simple Alliance Kenya Limited

 Share  Print Version  Email
Comments &Ratings (0)
If you are a human, do not fill in this field.
Click stars to rate.
   Comments are truncated at 1000 characters