Wednesday, September 30

Current Ratio

The current ratio is a liquidity and efficiency ratio that steps a company’s capability to repay its short-term obligations with its existing stocks. The present ratio is a significant measure of liquidity since short-term obligations are expected within the following calendar year.

This usually means that a business has a limited period of time so as to boost the money to cover these obligations. Present-day stocks such as cash, cash equivalents, and marketable securities can readily be converted to cash in the brief term. This usually means that companies with bigger quantities of assets will easily have the ability to pay off existing obligations if they become due without needing to sell off longterm, revenue earning stocks.

Formula

The present ratio is calculated by dividing current stocks by current liabilities. This ratio is said in numerical format instead of in chronological arrangement. Here’s the calculation:

Current Ratio