What is a Current Ratio?
The current ratio is a simple but effective tool that is often used to get an accurate picture of the financial stability of a company. Essentially, the calculation of a current ratio only requires that access to two accurate pieces of information is present – the total of current liabilities held by the company, as well as the value of current assets. By comparing the two figures and arriving at the current ratio for the company, it is possible to plan for future operations and determine ways to improve the overall condition of the business. One of the most important facts that a current ratio will reveal is the current status of a company to honor short-term debt obligations. Generally, a company that is in good financial condition will have a high ratio of assets to liabilities. This means that the company will not anticipate any problems in being able to honor short-term debt that may have been acquired to enhance some portion of the production process or replace equipment. Sometim
