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The current ratio is a financial ratio that measures whether or not a firm has enough resources to pay its debts over the next 12 months. It compares a firm's current assets to its current liabilities. It is expressed as follows:## See also

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$mbox\{Current\; ratio\}\; =\; frac\; \{mbox\{Current\; Assets\}\}\; \{mbox\{Current\; Liabilities\}\}$

For example, if WXY Company's current assets are $50,000,000 and its current liabilities are $40,000,000, then its current ratio would be $50,000,000 divided by $40,000,000, which equals 1.25. It means that for every dollar the company owes it has $1.25 available in current assets. A current ratio of assets to liabilities of 2:1 is usually considered to be acceptable (ie., your assets are twice your liabilities).

The current ratio is an indication of a firm's market liquidity and ability to meet creditor's demands. Acceptable current ratios vary from industry to industry. If a company's current assets are in this range, then it is generally considered to have good short-term financial strength. If current liabilities exceed current assets (the current ratio is below 1), then the company may have problems meeting its short-term obligations. If the current ratio is too high, then the company may not be efficiently using its current assets.

- BankRate.com - Current ratio calculator
- College-Cram.com - Current Ratio tutorial and calculator

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Last updated on Wednesday October 08, 2008 at 11:55:23 PDT (GMT -0700)

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This article is licensed under the GNU Free Documentation License.

Last updated on Wednesday October 08, 2008 at 11:55:23 PDT (GMT -0700)

View this article at Wikipedia.org - Edit this article at Wikipedia.org - Donate to the Wikimedia Foundation

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