Current Ratio

Knowledge Center

12manage is looking for students / contributors...


Measuring liquidity. Explanation of Current Ratio.


  1. Summary
  2. Forum
  3. Best Practices
  4. Expert Tips
  5. Resources
  6. Print

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 -

Current Ratio Forum
  Current Ratio in Banks
In bank accounting, which assets are normally cons...
  Current Ratio Example
A firm’s current assets and current liabilities ar...
  Current Ratio Expansion?
There is supposed to be some Expansion for CUR. Wh...
  Current Ratio Question
Assume a company is a 100% cash business. Pays it ...

Current Ratio Special Interest Group

Special Interest Group

Current Ratio Education & Events

Find Trainings, Seminars and Events

Best Practices - Current Ratio Premium

Expert Tips - Current Ratio Premium

Resources - Current Ratio Premium

Financial Statement Analysis | Ratio AnalysisSign up

This presentation provides insights in Financial s...
Usage (application): Ratio Analysis, Finanical Statement Analysis

3 Financial Ratios Every Manager Should KnowSign up

Why financ...
Usage (application): Types of Financial Ratios, Financial Ratio Analysis, Financial Ratio Types

Quickly Reading a Profit and Loss Statement and a Balance SheetSign up

This video explains that when we're reading a prof...
Usage (application): Profit and Loss Statement Analysis, Analyzing a P&L

Current Ratio DiagramSign up

Download and edit the 12manage PowerPoint model fo...
Usage (application): Measuring Liquidity

News about Current RatioSign up


News about Measuring LiquiditySign up


Videos about Current RatioSign up


Videos about Measuring LiquiditySign up


Presentations about Current RatioSign up


Presentations about Measuring LiquiditySign up


Books about Current RatioSign up


Books about Measuring LiquiditySign up


More about Current RatioSign up


More about Measuring LiquiditySign up


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 Leader

You here

About 12manage | Advertising | Link to us / Cite us | Privacy | Suggestions | Terms of Service
© 2018 12manage - The Executive Fast Track. V14.1 - Last updated: 16-8-2018. All names ™ of their owners.