Current Ratio

Current ratio is balance-sheet 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 companys 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 investments current ratio
quality.