Current Ratio

Knowledge Center

Summary, forum, best practices, expert tips and information sources.

17 items • 391.451 visits


Current Ratio Calculation LiquidityThe Current Ratio (CUR) method is a model for measuring the liquidity of a company. It is calculated by dividing all current assets by all current liabilities. It is an indicator of a company's ability to pay short-term obligations.

Current Ratio formula

For the Current Ratio formula, see the picture on the right.

This ratio is also known as the working capital ratio and real ratio and is the standard measurement of a business' financial health. It will tell us whether a company is able to pay its current obligations by measuring if it has enough assets to cover its liabilities.

Example of Current Ratio calculation

For example, if a corporation has M$50 in current assets to cover M$50 in current liabilities, this means that it has a Current Ratio of 1.

What is an acceptable Current Ratio?

This varies by industry. Generally speaking, the more liquid the current assets, the smaller the CUR can be without cause for concern. For most industrial companies, 1.5 is an acceptable CUR. A standard CUR for a healthy business is close to two. This means the company has twice as many assets as liabilities.

A thing to remember when using the CUR is that it ignores timing of both cash received and cash paid out.

Take the example of a company with no bills due today, but lots of bills that are due tomorrow. The company also owns a lot of inventory (as part of its current assets). However the inventory will only be sold in the longer term. This company may show a good Current Ratio, but can not be considered as having a good liquidity.

Book: Steven M. Bragg - Business Ratios and Formulas : A Comprehensive Guide

Book: Ciaran Walsh - Key Management Ratios

Special Interest Group

Current Ratio Special Interest Group.

Special Interest Group (35 members)


Forum discussions about the Current Ratio. Below you can ask a question about this topic, share your experiences, report a new development, or explain something.

Start a new topic about Current Ratio


🔥 NEW Current Ratio in Banks
In bank accounting, which assets are normally considered current assets and which liabilities are called current liabilities? Thanks....
Current Ratio Example
A firm’s current assets and current liabilities are 1500 and 600 respectively. How much it can borrow from bank without reducing the current ratio below 1.5?...
Current Ratio Expansion?
There is supposed to be some Expansion for CUR. Who can explain?...

Best Practices

The best, top-rated topics about the Current Ratio. Here you will find the most valuable ideas and practical suggestions.

Expert Tips

Advanced insights about the Current Ratio. Here you will find professional advices by experts.

Information Sources

Various sources of information regarding the Current Ratio. Here you will find powerpoints, videos, news, etc. to use in your own lectures and workshops.

Financial Statement Analysis | Ratio Analysis

Ratio Analysis, Finanical Statement Analysis
This presentation provides insights in Financial statement and ratio analysis, and includes the following sectios: 1. F...

3 Financial Ratios Every Manager Should Know

Types of Financial Ratios, Financial Ratio Analysis, Financial Ratio Types
Why financial ratio analysis? 1. To compare the financial health of (similar) companies (which one is doin...

Quickly Reading a Profit and Loss Statement and a Balance Sheet

Profit and Loss Statement Analysis, Analyzing a P&L
This video explains that when we're reading a profit and loss statement as a director we should: - Not focus on the fig...

Current Ratio Diagram

Measuring Liquidity
Download and edit the 12manage PowerPoint model for limited personal, educational and business use. Republishing in int...

Research Links

Jump to further research sources regarding the Current Ratio.








Compare with: Quick Ratio  |  Cash Ratio  |  Z-Score  |  Discounted Cash Flow  |  Free Cash Flow  |  Economic Value Added  |  Economic Margin  |  CFROI  |  Return on Invested Capital

Return to Management Hub: Finance & Investing

More Management Methods, Models and Theory

Special Interest Group

Do you know a lot about the Current Ratio? Become our SIG Leader and gain worldwide recognition as an expert.

About 12manage | Advertising | Link to us / Cite us | Privacy | Suggestions | Terms of Service
© 2023 12manage - The Executive Fast Track. V16.1 - Last updated: 5-6-2023. All names ™ of their owners.