What is Current Ratio? current ratio

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This compares assets, which will become liquid within approximately twelve months (i.e. total current assets) with liabilities which will be due for payment in the same period (i.e. total current liabilities) as is intended to indicate whether there are sufficient short-term assets to meet the short term liabilities.
  
Current Ratio = Current Assets ÷ Current Liabilities




Thus, this ratio is an indication of the ability of a business to pay its debts when they fall due.  Sometimes a ratio of 2:1 is quoted as being average.  What this means, is that for every £1 of current debt, there is £2 in current assets to meet that debt.

See Acid Test Radio for a comparison without the inclusion of stock.
 

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