Current ratio definition

The current ratio is an important indicator of a business's short-term financial viability, identifying its ability to meet current obligations. Current ratio is calculated from the balance sheet by dividing current assets by current liabilities. A 2-1 ratio, assets to liabilities, is typically considered a healthy short-term financial condition.

Current assets are cash, inventory and accounts receivable. Current liabilities are accounts payable and other short-term obligations, like payments that are due typically within the next 30 days.

Expect any banker to focus on the current ratio very quickly when considering any loan proposal.

Search again for other ratios, including the quick ratio.