The current ratio is a comparison of current assets to current liabilities, calculated by dividing your current assets by your current liabilities. Potential creditors use the current ratio to measure a company's liquidity or ability to pay off short-term debts.
Formula
Current ratio = Current assets / Current liabilities
Example
Mr. Naga’s Shop sells ice-skating equipment to local hockey teams and $100,000 are his current liabilities and only $25,000 of current assets.
According to the formula, Current ratio is:-
= $25,000 / $100,000
= 0.25 or 25%
Created: Jun 4, 2018
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