




Current ratio is balancesheet financial performance measure of company liquidity. Current ratio is calculated by dividing current assets by current liabilities. Current ratio of more than 1.0 means that a company's short term assets exceed its short term liabilities. For example, if Tractorco has current assets of $12 million and current liabilities of $10 million then the current ratio for Tractorco is 1.20 or 1.2x. Although a current ratio of 2.0 or 2x means that a company has great short term financial strength, a current ratio of less than 1.0 does not necessarily signal problems unless this weak current ratio shows persistent inability of a company to meet short term obligations. Current ratio is often calculated in conjunction with a second ratio, the "quick ratio" which subtracts inventories from current assets before dividing by current liabilities. Both quick ratio and current ratio "normal" measures very greatly by industry and a comparison of current ratio with other companies within the same industry or sector is helpful in determining a investment's current ratio quality.
Rate this current ratio definition...




Where is the market headed? The answer may surprise you. Find out with the exclusive & Barron's recommended charts of Chart of the Day. 

Popular Terms: balance sheet, Zero Cost Collar, LIBOR, implied volatility, whollyowned subsidiary, inflation, per diem, Key Rate Duration, open position, limit order, 144a, exdividend, covered put, EBITDA, option premium, retained earnings, annual return, quality assurance, diluted share, labor relations, exdividend date, 401a, average price per share, deferred revenue, 1035 exchange, risk management, in escrow, command economy, required rate of return, liquidity ratio, minority interest, cancelled check, current ratio, reverse mortgage, FTSE, 1031 exchange, real GDP, FICO score, stock split, irrevocable trust, margin rate, APR, VIX, phantom income, stock market close, deferred tax, dividends payable, debt service coverage, class C shares


 