




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


 