current ratio

Current Ratio

Indicator of company's ability to pay short-term obligations calculated by dividing current assets by current liabilities.

Notes:

Current Ratio is useful for comparing companies within the same industry. The higher the ratio, the more liquid the company.

Also known as liquidity ratio, cash asset ratio, and cash ratio.

See also: Acid-Test

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Current ratio

Indicator of short-term debt-paying ability. Determined by dividing current assets by current liabilities. The higher the ratio, the more liquid the company.

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current ratio

A measure of a firm's ability to meet its short-term obligations. The current ratio is calculated by dividing current assets by current liabilities. Both variables are shown on the balance sheet. A relatively high current ratio compared with those of other firms in the same business indicates high liquidity and generally conservative management, although it may tend to result in reduced profitability. See also cash ratio, quick ratio.