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Meaning of current ratio

 

 

 

Current ratio

 

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Business glossary

 

Meaning of term current ratio :

 

The current ratio is a ratio that shows how easily a business can meet its short-term financial commitments. It is calculated by dividing the level of current assets by the level of current liabilities. If the ratio is greater than one then this shows that the business could meet all its current liabilities if it converted all its assets into cash. If the figure is below one, then the firm has a problem with the level of liquidity as it cannot meet all its current liabilities. The current ratio is termed a liquidity ratio as it is an indicator of how liquid their position is.

 

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Current ratio

 

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