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Username: LuckyMan

Rating:
Guru Stars

Asked to: Talitha Taslim

Date Created: 18 Aug 2017
Category 28
Tag Financial
Question What is the 'Current Ratio'?
Advice from Guru
Hello LuckyMan,

The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations. To gauge this ability, the current ratio considers the current total assets of a company (both liquid and illiquid) relative to that company’s current total liabilities.

The formula for calculating a company’s current ratio, then, is:

Current Ratio = Current Assets / Current Liabilities

The current ratio is called “current” because, unlike some other liquidity ratios, it incorporates all current assets and liabilities.

The current ratio is also known as the working capital ratio.

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