Current Ratio Formula





Current assets = Total current assets as shown by balance sheet


Current liabilities = Total current liabilities as shown by balance sheet 


Description: 

Current ratio is a ratio between current assets and liabilities, which tells that for every dollar in current liabilities, how many current assets do the company possess. Since the current liabilities are usually paid out of current assets, it makes sense to compare the two figures to assess the liquidity of the firm. Liquidity implies the ease with which the current liabilities can be paid off. Generally, the higher the ratio, the better it is considered, but too high a ratio may imply less productive use of current assets.


Current ratio of two to one (2:1) is considered ideal.