current ratio

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.

Cash Asset Ratio

A ratio of a company's cash and liquid assets to its total liabilities. A cash asset ratio measures a company's liquidity and how easily it can service debt and cover short-term liabilities if the need arises. As a result, potential creditors use this ratio in determining whether or not to make short-term loans. It is also called the liquidity ratio and the current ratio.

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Cash Ratio

1. A ratio of a company's cash and liquid assets to its total liabilities. A cash ratio is a measure of company's liquidity and how easily it can service debt and cover short-term liabilities if the need arises. As a result, potential creditors use this ratio in determining whether or not to make short-term loans. It is also called the liquidity ratio and the cash asset ratio.

2. In banking, a ratio of a bank's cash and cash equivalents to its demand deposits. See also: Reserve requirement.

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.

current ratio

or

acid-test ratio

an accounting measure of a firm's ability to pay its short-term liabilities out of its quickly-realizable CURRENT ASSETS, which expresses the firm's liquid current assets (DEBTORS plus cash) as a ratio of CURRENT LIABILITIES. Sometimes called the ‘quick ratio’, this is a more stringent test of liquidity than the WORKING CAPITAL RATIO, because it excludes STOCK from CURRENT ASSETS on the grounds that STOCKS cannot be as readily convertible into cash to meet short-term debts as can DEBTORS where the goods or services have already been sold and only collecting the money remains.