For management learners globally

Home | Management Concepts | Newsletter | About | Contact | PowerPoints | Management Cliparts |

Liquidity Ratios Tweet

Current Ratio
The current ratio is sometimes called the working capital ratio. It is calculated by dividing current assets by current liabilities.

Current Ratio              Current Assets
                        =          _________     

                                    Current Liabilities

For example if my current assets are £3000 and my current liabilities are £2000 I would work out my current ratio as follows

Current Assets                        4000
_________                  =          _________      = 2

Current Liabilities                    2000

As Liquidity ratios are expressed against 1 my current ratio for this example is 2:1.

Current assets are used in this ratio because they can be converted into cash fairly easily. Current assets are things that can be converted into cash within one year. Examples of current assets are  

1. stock
2. cash
3. debtors (money owed to the business)

Back | Acid Test Ratio