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Formula to calculate current ratio.
Current ratio interpretation. The current ratio is a measure of a companys ability to pay its short-term obligations with its short-term assets. In the current ratio an increase in the numerator current assets increases the ratio and vice versa. Current ratio is a liquidity ratio which measures a companys ability to pay its current liabilities with cash generated from its current assets.
Short-term solvency refers to the ability of a business to pay its short-term obligations when they become due. Current usually means a short time period of less than twelve months. Interpretation of Current Ratio.
A high ratio implies that. Investors typically look for a current ratio greater than 1 150 or even 2. A current ratio of 21 is considered a lenient liquidity position and 11 would be too tight.
In the same vein as the current ratio the debt to equity is a good measure of financial strength that can be useful when looking for stable investments. It is defined as current assets divided by current liabilities. Ratio measures the capability of a business to meet its short-term obligations that are due within a year.
Interpretation of Current Ratio. It is current assets divided by current liabilities. On the other hand a relatively low current ratio represents that the liquidity position of the firm is not good and the firm shall not be able to pay its current liabilities in time without facing.
Current ratio calculates the general liquidity of the business concern. One of the most widely used and important liquidity ratio is the Current Ratio. For example current ratio may be studied along with liquid ratio.
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