What is Current Ratio?

What is the Current Ratio?

Your current ratio tells you whether you have sufficient current assets to meet your current liabilities. In simple terms this could indicate whether you have enough trade debtors to cover your trade creditors.

How is the Current Ratio Calculated?

Current Ratio = Current Assets/Current Liabilities

The above balance sheet shows that Example Accounts Limited for 2017 has a Current Ratio of 6.

What Does the Current Ratio Show

In the above example we can see that Example Accounts Limited has sufficient cash and trade debtors to meet its short term liabilities.

What is the Ideal Current Ratio

Your ideal current ratio will depend on the type of business your operate in however you should aim to have a current rate of at least 2.


About Anita Forrest

Anita Forrest is a Chartered Accountant, spreadsheet geek and money nerd helping financial DIY-ers organise their money so they can hit their goals quicker.