Current Assets To Liabilities Ratio

Managing short‑term financial obligations is critical for any company’s financial health. The Current Assets to Liabilities Ratio is one of the most important financial measurements that provides key insights. It tells you whether the company has sufficient short‑term assets (such as cash, inventory, etc.) to cover its short‑term obligations.

Keep reading! We will walk through each step in detail.

What Is the Current Assets to Liabilities Ratio?

The Current Assets to Liabilities Ratio, also known as the Current Ratio, is a commonly used metric that determines whether a company’s current assets are sufficient to cover its current liabilities. Here is how it is calculated:

$$$ \text{Current Ratio}=\frac{\text{Total Current Assets}}{\text{Total Current Liabilities}}$$$

• Current Assets are the total assets that can be used to cover financial obligations, such as cash, inventory, or any other items that can be converted into cash within 12 months.
• Current Liabilities are the obligations a company has to pay, such as short‑term loans, taxes payable, wages payable, and other liabilities due within 12 months.

The Current Assets to Liabilities Ratio (Current Ratio) gives you a single number:

• > 1.0 means the company has sufficient current assets.
• < 1.0 indicates the business could face a liquidity crisis.

How to use the Current Assets to Liabilities Ratio Calculator

The calculator is straightforward. Here are the key inputs to use it:

• Current Assets: Enter the total amount of current assets (e.g. $500,000).
• Current Liabilities: Enter the total amount of liabilities to be covered (e.g., $300,000)

The calculator instantly shows the result:

• Assets‑to‑Liabilities Ratio: The calculator displays the current ratio. A value greater than 1.0 indicates healthy liquidity; less than 1.0 suggests risk. In this example, it shows 1.67, indicating a healthy short‑term financial profile.

A Real‑World Example

Suppose your company is reporting $120,000 in current assets and $60,000 in current liabilities. So you want to know ratio:

• Current Assets: $120,000
• Current Liabilities: $60,000

Perform calculation:

$$$ \text{Current Ratio}=\frac{\text{120,000}}{\text{60,000}}=2.00$$$

Thus, we got a ratio of 2.00, which indicates that you have $2 in assets for every $1 of liabilities, meaning a healthy short‑term financial profile