Current Ratio
Ratios are used to measure the performance of a company.
The Current Ratio is used to determine the liquidity of a company.
To determine the Current Ratio divide Current Assets by Current Liabilities.
Current Ratio = Current Assets / Current Liabilities
Current assets are items that include cash or can be converted to cash in a short time such as inventory, accounts receivables, and notes receivable.
Current Liabilities are obligations that a company expects to pay within a short time. Current liabilities include accounts payable, and currently due notes payable among other obligations.
Why does it matter? A company's current ratio is an indication of their ability to pay upcoming expenses. A very low ratio means that the company is struggling to stay ahead of its debts and may not be able to cover them all in a timely matter. Among current assets is cash, and when it comes to paying obligations, cash is king.
Showing posts with label Accounting help. Show all posts
Showing posts with label Accounting help. Show all posts
Monday, January 10, 2011
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