Monday, September 24th 2018

Current Ratio

Current Ratio Meaning:
In accounting terminology, the term Current Ratio refers to the ratio between the current assets divided by the current liabilities. The Current Ratio represents a gauge of a company’s ability to meet short-term debt obligations.

Current Ratio Example:
For example, if the assets of a company vastly outweigh its liabilities, then that company has a very good Current Ratio. Basically, if a company has at least twice as many assets as liabilities, that would indicate a Current Ratio of 2.0. If the numbers were reversed, then the ratio would be 0.5. The higher the Current Ratio number, the more liquid the company’s financial position would be. Numbers below 1 generally indicate that a company may run into trouble meeting its debt obligations in the short term, although low numbers are not always an indication of a problem. If a company has solid long-term prospects, then the company can borrow in the short term to meet its obligations.
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