Current ratio (likviditetsgrad 1)

Likviditetsgrad 1, or the current ratio, is a financial key figure that measures a business's ability to meet its short-term financial obligations by measuring current assets against current liabilities. The current ratio gives insight into the business's liquidity and its ability to pay down current liabilities with the means available.

How it is calculated

The current ratio is calculated by dividing current assets by current liabilities. The formula is as follows:

Current ratio = Current assets / Current liabilities

What is it used for?

The current ratio is used to assess how well a business can pay off its current liabilities using its current assets, including inventory and trade receivables. It gives insight into the business's ability to meet its short-term obligations.

Tips for improving the current ratio

1. Increase liquid current assets. Make sure the business has a sufficient quantity of liquid funds, such as cash and bank deposits, to meet short-term obligations.
2. Reduce current liabilities. Identify opportunities to reduce current liabilities, for example through refinancing or negotiations with creditors.
3. Effective receivables management. Have effective routines for invoicing and collecting outstanding trade receivables in order to reduce the collection period and increase liquid funds.
4. Control inventory. Optimise inventory in order to avoid overstocking or inefficient stock management, which can tie up liquid funds.
5. Improve short-term liquidity management. Put effective liquidity management strategies in place, including careful planning of payments and close monitoring of cash flow.
6. Negotiations with suppliers. Negotiate payment terms with suppliers in order to obtain more flexible and favourable payment conditions.