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Feb 20, 2024 · The current ratio is a liquidity ratio that measures a company’s ability to pay short-term obligations or those due within one year. It tells investors and analysts how a company can...
- Jason Fernando
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Current Ratio = Current Assets / Current Liabilities. Example of the Current Ratio Formula. If a business holds: Cash = $15 million; Marketable securities = $20 million; Inventory = $25 million; Short-term debt = $15 million; Accounts payables = $15 million; Current assets = 15 + 20 + 25 = 60 million. Current liabilities = 15 + 15 = 30 million ...
The formula for current ratio is: Current ratio = Current assets ÷ Current liabilities. Current assets include cash and cash equivalents, marketable securities, short-term receivables, inventories, and prepayments.
What is the current ratio formula? You calculate the current ratio by dividing your company’s current assets by your current liabilities, i.e.: Current ratio = total current assets / total current liabilities. Let’s imagine that your fictional company, XYZ Inc., has $15,000 in current assets and $22,000 in current liabilities.
Jul 11, 2023 · Solution. Current ratio = Current assets/Current liabilities. = $1,100,000/$400,000. = 2.75 times. The current ratio is 2.75 which means the company’s currents assets are 2.75 times more than its current liabilities. Significance and interpretation.
Jun 8, 2023 · The current ratio or working capital ratio is a ratio of current assets to current liabilities within a business. In other words, it is defined as the total current assets divided by the total current liabilities. The current ratio is one of the oldest ratios used in liquidity analysis.
Apr 18, 2024 · The current ratio formula is the current assets of a company divided by its current liabilities. A current ratio of around 1.5x to 3.0x is considered to be healthy, whereas a current ratio below 1.0x is deemed a red flag that implies the near-term liquidity of the company presents risks.
