What is the current ratio?
The current ratio measures a business’s ability to pay short term obligations using current assets.
How is the current ratio calculated?
The current ratio equals current assets divided by current liabilities.
Why is the current ratio important?
It indicates liquidity and short term financial stability.
What is a good current ratio?
A ratio above 1 indicates assets exceed liabilities, which suggests the business can meet obligations.
What are limitations of the current ratio?
It does not consider asset quality or timing of cash flows.