What is the Current Ratio?
Your current ratio tells you whether you have sufficient current assets to meet your current liabilities. In simple terms this could indicate whether you have enough trade debtors to cover your trade creditors.
How is the Current Ratio Calculated?
Current Ratio = Current Assets/Current Liabilities
The above balance sheet shows that Example Accounts Limited for 2017 has a Current Ratio of 6.
What Does the Current Ratio Show
In the above example we can see that Example Accounts Limited has sufficient cash and trade debtors to meet its short term liabilities.
What is the Ideal Current Ratio
Your ideal current ratio will depend on the type of business your operate in however you should aim to have a current rate of at least 2.