{"id":31595,"date":"2023-10-13T13:53:50","date_gmt":"2023-10-13T13:53:50","guid":{"rendered":"https:\/\/swoopfunding.com\/au\/?post_type=business-glossary&p=31595"},"modified":"2025-04-24T14:15:03","modified_gmt":"2025-04-24T14:15:03","slug":"current-ratio","status":"publish","type":"business-glossary","link":"https:\/\/swoopfunding.com\/au\/business-glossary\/current-ratio\/","title":{"rendered":"Current ratio"},"content":{"rendered":"

Definition<\/h3>\n

The current ratio is a financial metric used to assess a company’s short-term liquidity and its ability to cover immediate financial obligations<\/a> with its current assets<\/a>.\u00a0<\/span><\/p>\n

What is a current ratio?<\/h3>\n

The current ratio, along with other financial ratios, is typically disclosed in a company’s financial statements<\/a>, providing transparency to stakeholders about its short-term liquidity position.<\/span><\/p>\n

The current ratio is calculated using the following formula:<\/span><\/p>\n

Current ratio = total current assets \/ total current liabilities<\/a><\/span><\/p>\n

A current ratio greater than 1 indicates that a company has more current assets than current liabilities, while a current ratio of less than 1 implies that a company may have difficulty meeting its short-term obligations using its current assets alone. A higher current ratio indicates a healthier level of working capital.<\/span><\/p>\n

The \u2018ideal\u2019 ratio is between 1.5 and 2. The current ratio provides a snapshot of a company’s short-term liquidity, but it doesn’t offer insight into the company’s ability to generate cash in the future.<\/span><\/p>\n

Example of current ratio<\/h3>\n

Let’s consider an example for a fictional company, XYZ Inc.:<\/p>\n

Current assets:<\/strong><\/p>\n