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Current Ratio Explained

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In detail, please describe the following: What is the current ratio? What does the current ratio measure? What are reasons for using the current ratio analysis?

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Solution Summary

The current ratio is a financial tool used by investors, analysts, banks and creditors to measure the current financial state of a company. An examination of the components of the current ratio and an explanation of the current ratio. The expert provides a reference to aid in the understanding of the question.

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Accounting
In detail, please describe the following: What is the current ratio? What does the current ratio measure? What are reasons for using the current ratio analysis?

The current ratio examines the current assets of a business against its current liabilities. The current ratio is the most widely used liquidity test of a business. The current ratio measures a company's ability to pay its debts over the course of the next 12 months.

Current Ratio formula:

Current Ratio=Current Assets ÷Current ...

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