Current ratio: Difference between revisions
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Current assets | ''Financial ratio analysis - liquidity ratios.'' | ||
Current assets / Current liabilities. | |||
The current ratio gives a very rough indication of the liquidity (or solvency) of the reporting entity. | The current ratio gives a very rough indication of the liquidity (or solvency) of the reporting entity. | ||
| Line 5: | Line 7: | ||
If the current ratio were to fall below 1.0, this would indicate that the entity would not be able to meet its current liabilities out of its cash in hand and the proceeds of its other current assets. | If the current ratio were to fall below 1.0, this would indicate that the entity would not be able to meet its current liabilities out of its cash in hand and the proceeds of its other current assets. | ||
'''Example''' | |||
Current assets = £5m. | |||
Current liabilities = £4m. | |||
The current ratio is: | |||
= 5 / 4 | |||
= 1.25. | |||
== See also == | == See also == | ||
* [[Balance sheet ratio]] | |||
* [[Current assets]] | * [[Current assets]] | ||
* [[Current liabilities]] | * [[Current liabilities]] | ||
* [[Liquidity]] | * [[Liquidity]] | ||
* [[Liquidity ratio]] | |||
* [[Quick ratio]] | * [[Quick ratio]] | ||
* [[Ratio analysis]] | |||
[[Category:Accounting,_tax_and_regulation]] | |||
[[Category:The_business_context]] | |||
[[Category:Liquidity_management]] | [[Category:Liquidity_management]] | ||
Latest revision as of 11:08, 6 February 2019
Financial ratio analysis - liquidity ratios.
Current assets / Current liabilities.
The current ratio gives a very rough indication of the liquidity (or solvency) of the reporting entity.
If the current ratio were to fall below 1.0, this would indicate that the entity would not be able to meet its current liabilities out of its cash in hand and the proceeds of its other current assets.
Example
Current assets = £5m.
Current liabilities = £4m.
The current ratio is:
= 5 / 4
= 1.25.
