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What does current ratio mean in business language?
What is current ratio?
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grand master
In business the "current ratio" is a financial ratio that is used to measure a firm's ability to pay its current obligations (debt).
Alternatively, we can say the current ratio measures if a company will be able to pay short term loans which are expected to be cleared off in a period of less than a year.
The current ratio is calculated by dividing current assets with current liabilities as follows:
*FORMULA: Current Ratio = Current Assets / Current liabilities
In most cases investors often look for a company with a current ratio of 2:1, were current assets are twice as large compared to current liabilities.
A current ratio less than one indicates the company might have problems meeting short-term financial obligations.
Alternatively, we can say the current ratio measures if a company will be able to pay short term loans which are expected to be cleared off in a period of less than a year.
The current ratio is calculated by dividing current assets with current liabilities as follows:
*FORMULA: Current Ratio = Current Assets / Current liabilities
In most cases investors often look for a company with a current ratio of 2:1, were current assets are twice as large compared to current liabilities.
A current ratio less than one indicates the company might have problems meeting short-term financial obligations.
