What is Current Ratio?

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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.

Anita is a Chartered Accountant, turned blogger and creator of the ever popular free Go Self Employed Email Mini Course, which has been completed by hundreds of attendees all over the UK. Using her 10 years experience in accounting, tax and operations for Small Businesses, Anita is on a mission to make finance simple for the self employed, so they can stop stressing about tax & finances and focus on building profitable businesses which will give them the lifestyle they dream of.