Current Ratio Definition - Formula - Importance - Example
Current Ratio defines the relationship between Current Assets And Current Liabilities . The company is strong enough to maintain its Working Capital effective, if this ratio is equal to 1 or more. But, if it is less than 1 or negative then it shows that the company can’t not pay the due amount to Creditors and not suitable for investors. Current Ratio is also called Liquidity ratio because it shows those current assets of the business which can be converted into cash within the year and these Current Assets are used to meet daily working expenses of the business. Current Ratio Formula And Calculation It is the ratio of Current Assets To Current Liabilities and it is writte n in mathematical form as: Current Ratio = Current Assets / Current Liabilities Importance of Current Ratio 1. By knowing the Current Ratio or Working Capital Ratio or Liquidity Ratio of a