What Is Current Ratio | How To Calculate Current Ratio

What Is Current Ratio, Current Ratio Formula, How To Calculate Current Ratio

What Is Current Ratio ? The company has a way that it can pay off the current liabilities (debt) by selling its current assets.

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This will happen only when the current assets of the company are more than its current liabilities.

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Now we will find out from the current ratio that how much Current Assets are more than its Current Liabilities.

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What is Current Ratio Formula ?

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What is Current Ratio Formula ? Current Ratio = Current Assets / Current Liabilities

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How To Calculate Current Ratio? Current Ratio Example - There is an XYZ company with Current Assets 240 Crores and Current Liabilities 90 Crores. Current Ratio = 240 cr / 90 cr Current Ratio = 2.6

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This means that if the company has Current Liabilities of Re.1 then it has Rs.2.5 to repay it. Seeing this it is clear that the company can easily repay all its current liabilities.

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Which Current Ratio Is Better ?

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It is quite right for the company's current ratio to be more than 1. In such a situation, it is a matter of great happiness for the investors because the company can repay all its liabilities ahead of time.

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Which Current Ratio Is Better - between 1.2 to 2

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Is a higher current ratio better? A current ratio of 2 or more is good enough, and anything less than 2 is cause for concern.

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What Is Current Ratio (How To Calculate Current Ratio)

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