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Whipsaw Glossary

Currently viewing the definition of: Current Ratio
 
 
 current ratio = current assets / current liabilities The current ratio shows how easily a company could raise funds to satisfy its short-term creditors if they all required paying immediately. Ideally the ratio should be at leat 1:1 to ensure there are sufficient assets to meet liabilities. The ratio should not be too high, say 2:1, as this would indicate cash is not being used to full effect. As current assets include stock, the quick ratio (also known as the acid test ratio) is often preferred, as the stock may be slow moving and not readily realisable.