1. What is a Liquidity Ratio Calculator?

Definition: This calculator computes the current ratio, which measures a company's ability to pay short-term obligations with its current assets.

Purpose: It helps financial analysts, business owners, and investors assess a company's short-term financial health.

2. How Does the Calculator Work?

The calculator uses the formula:

Where:

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

Explanation: A ratio above 1 indicates more current assets than liabilities, while below 1 suggests potential liquidity issues.

3. Importance of Current Ratio

Details: This ratio is crucial for creditors evaluating loan applications and for management assessing operational efficiency.

4. Using the Calculator

Tips: Enter the total current assets and current liabilities in dollars. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good current ratio?
A: Typically 1.5-3.0 is considered healthy, but this varies by industry.

Q2: What's included in current assets?
A: Cash, accounts receivable, inventory, marketable securities, and prepaid expenses.

Q3: What's included in current liabilities?
A: Accounts payable, short-term debt, accrued liabilities, and current portion of long-term debt.

Q4: How often should I calculate this ratio?
A: For businesses, it should be calculated at least quarterly with financial statements.

Q5: What's the difference between current and quick ratio?
A: Quick ratio excludes inventory from current assets, providing a more conservative measure.