Financial Statement Analysis
 Ratio Analysis of Financial Statements (Formula, Types, Excel)
 Ratio Analysis Advantages
 Ratio Analysis
 Liquidity Ratios
 Cash Ratio
 Quick Ratio
 Quick Ratio Formula
 Current Ratio
 Current Ratio Formula
 Acid Test Ratio Formula
 Defensive Interval Ratio
 Working Capital Ratio
 Working Capital Formula
 Net Working Capital Formula
 Current Ratio vs Quick Ratio
 Bid Ask Spread
 Liquidity vs Solvency
 Liquidity
 Solvency
 Liquidity Risk
 Altman Z Score
 Turnover Ratios
 Profitability Ratios
 Profit Margin
 Gross Profit Margin Formula
 Operating Profit Margin Formula
 Net Profit Margin Formula
 EBIDTA Margin
 OIBDA
 Earnings Per Share
 Basic EPS
 Diluted EPS
 Basic EPS vs Diluted EPS
 Return on Equity (ROE)
 Return on Capital Employed (ROCE)
 Return on Invested Capital (ROIC)
 ROIC vs ROCE
 CFROI
 Return on Total Assets (ROA)
 Return on Average Capital Employed
 Capital employed Employed
 Return on Average Assets (ROAA)
 Return on Average Equity (ROAE)
 Return on Assets Formula
 Return on Equity Formula
 DuPont Formula
 Net Interest Margin Formula
 Earnings Per Share Formula
 Diluted EPS Formula
 Contribution Margin Formula
 Revenue Per Employee Ratio
 Operating Leverage
 EBIT vs EBITDA
 EBITDAR
 Capital Gains Yield
 Tax Equivalent Yield
 LTM Revenue
 Operating Expense Ratio Formula
 Overhead Ratio Formula
 Capitalization Rate
 Comparative Income Statement
 Capacity Utilization Rate Formula
 Total Expense Ratio Formula
 Efficiency Ratios
 Dividend Ratios
 Debt Ratios
 Debt to Equity Ratio
 Debt Coverage Ratio
 Debt Ratio
 Debt to Income Ratio Formula (DTI)
 Capital Gearing Ratio
 Capitalization Ratio
 Interest Coverage Ratio
 Times Interest Earned Ratio
 Debt Service Coverage Ratio (DSCR)
 Financial Leverage Ratio
 Net Debt Formula
 Leverage Ratios
 Operating Leverage vs Financial Leverage
 Current Yield
 Debt Yield Ratio
Current Ratio Formula
It is the most common ratio to calculate. And even if you ask any new investor, she will tell you about this ratio for sure.
Without any ado, let’s look at the Formula of Current Ratio below.
Current Ratio Example
Let’s take a simple Current Ratio example to illustrate current ratio formula.
Give Company has the following information –
 Sundry Debtors – $40,000
 Inventories – $30,000
 Prepaid Expenses – $5000
 Sundry Creditors – $25000
 Outstanding salaries – $10,000
Find out the CR of Give Company.
Here we have all the information. From the information given, we need to separate out the current assets and the current liabilities.
 Current Assets – Sundry Debtors, Inventories, Prepaid Expenses
 Current Liabilities – Sundry Creditors, Outstanding Salaries
Now, we will find out the total of current assets and current liabilities.
 Total Current Assets = (Sundry Debtors + Inventories + Prepaid Expenses) = ($40,000 + $30,000 + $5000) = $75,000
 Total Current Liabilities = (Sundry Creditors + Outstanding Salaries) = ($25,000 + $10,000) = $35,000.
 CR of Give Company is = Current Assets / Current Liabilities = $75,000 / $35,000 = 2.14.
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Colgate Current Ratio Example
Current Ratio is calculated as Current Assets of Colgate divided by Current Liabilities of Colgate.
 CR of Colgate (2010) = 3,730 / 3,728 = 1.00x
 CR of Colgate (2011) = 4,402 / 3,716 = 1.18x
 CR of Colgate (2012) = 4,556 / 3,736 = 1.22x
 CR of Colgate (2013) = 4,822 / 4,470 = 1.08x
For more details, refer to Ratio Analysis excel
Explanation of Current Ratio Formula
The current ratio is calculated because the investor wants to know how liquid a firm is. It is one of the liquidity ratios that are easy to calculate. And it also gives a quick idea about the liquidity of the company.
To calculate current ratio, all we need are current assets and current liabilities.
Current assets include assets that can be liquidated within a year from now. If an asset can’t be liquidated within a year, it wouldn’t come under current assets.
It is similar with current liabilities. If the liability can’t be paid off within one year, we can’t consider it under current liabilities.
Current Assets  Current Liabilities 
Cash & cash equivalents  Accounts Payable 
Investments  Deferred Revenues 
Accounts receivable, or trade receivables  Accrued Compensation 
Notes receivable maturing within one year  Other accrued expenses 
Other receivables  Accrued Income Taxes 
Inventory of raw materials, WIP, finished goods  Short Term notes 
Office supplies  Current Portion of Long term debt 
Prepaid expenses  
Advance payments 
Use of Current Ratio Formula
Why is this ratio called a liquidity ratio? It’s because it has two components in its – current assets and current liabilities.
Through this ratio, we look at whether the firm has enough current assets to pay off its current liabilities. It means if we liquidate all of the current assets of the company, whether the company would have enough cash to pay off its current liabilities. Therefore, if a company has more current assets and less current liabilities, it is a great position for a company to be in, in terms of liquidity.
As an investor, you don’t know whether the company has enough current assets to pay off its current liabilities. That’s why you need to use this ratio. And once the investor finds out the this ratio of the company, she needs to go ahead and look at this ratio of similar companies under the same industry. And then she would check whether the current ratio of the target company is appropriate.
For current ratio example, if Company A is the investor’s target company, she will first look at the current ratio of Company A (let’s say 3). And then she will look at the this ratio of other companies under similar industry to check whether the this ratio of the target company in the desired range.
Current Ratio Calculator
You can use the following Current Ratio Calculator
Current Assets  
Current Liabilities  
Current Ratio Formula =  
Current Ratio Formula = 


Current Ratio Formula in Excel (with excel template)
Let us now do the same current ratio example above in Excel. This is very simple. You need to provide the two inputs of Current Assets and Current Liabilities.
You can easily calculate the ratio in the template provided. Now, we will find out the total of current assets and current liabilities with the formula of current ratio.
Now to find the ratio of given Company, we will use the following current ratio formula.
You can download this Current ratio template here – Current Ratio Excel Template
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This has been a guide to Current Ratio Formula, practical Current Ratio example, and Current Ratio calculator along with excel templates. You may also have a look at these articles below to learn more about Financial Analysis –
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