What is Current Ratio?

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What is Current Ratio

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

trade debtors

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.

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Michael is a small business accountant with a passion for helping start ups and entrepreneurs. His extensive experience in business planning, tax and advisory has benefits every single one of his clients, giving each one a competitive advantage.

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