Current Ratio

Current Ratio is the amongst one of the most popular ratios. Current Ratio is also known as Liquidity Ratio or Cash Asset Ratio or Cash Ratio.

Current Ratio indicates company's ability to pay short-term obligations.

Current or Liquidity Ratio is calculated as per following formula:

Current Ratio = Current Assets / Current Liabilities

In the formula, Current Assets covers cash on hand & bank balances, inventory and receivables and Current Liabilities cover debt and payables. Naturally, when total current assets are more than total current liabilities, the company is in good condition and can pay off its liabilities with the assets. When the situation is other, it will be difficult for company to pay off its obligation. 

Depending upon industry and its operations, the company's ratio should be compared with other companies in the same industry.

Ideally, figures of assets and liabilities are taken of less than 12 months.

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