This posting answers such questions as: What financial information does the current ratio measure? How has the current ratio relate to the other liquidity ratios? Which financial ratios would you use - and how - to determine whether a company will be able to meet its commercial bank loan payments?© BrainMass Inc. brainmass.com March 4, 2021, 8:09 pm ad1c9bdddf
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The Current Ratio
Expressed as a comparison between a firm's current assets to its current liabilities, the current ratio is a commonly used financial ratio that is used to determine whether or not a firm has enough resources to pay its short-term debt obligations (under 12 months).
Current Ratio = Current Assets / Current Liabilities
For example, if a firm's current assets are $80,000,000 and its current liabilities are $30,000,000, then the firm's current ratio would be represented by $80,000,000 divided by $30,000,000, or 2.67. This expression means that for every dollar that the firm owes, it has $2.67 available in current assets.
Although acceptable current ratios vary from industry to industry, a current ratio of assets to liabilities in the range of 2 to 1 (or 2.0) ...
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