Current Ratio, Ratio Analysis, Liquidity Ratio
The Current Ratio is the most widely used liquidity ratio. It measures how comfortably a business can pay short-term liabilities with short-term assets; that is, pay its current liabilities from current assets.
The Current Ratio is important because if you can't pay your short-term liabilities you are out of business; and generally you can only pay your debts with your current assets as they are the more liquid assets
This ratio analysis technique is also general indicator of the safety of the business. A high Current Ratio generally means a more secure business, as for most businesses it's a pretty straightforward indicator into how easily (or safely) a business can continue through paying all it's debts.
The Current Ratio of say, 2.82, simply represents the number of times over your current assets can be used to pay out your current liabilities. So a result of 2.82 simply means your current assets can be used 2.82 times over to pay current liabilities.
Current Ratio Calculator
The calculator asks for:
Current Assets, which are found on the balance sheet.
Current Liabilities, which are also found on the balance sheet.
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