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The current ratio is a financial ratio that measures whether or not a firm has enough resources to pay its debts over the next12 months. It compares a firm's current assets to its current liabilities. It is expressed as follows:
The current ratio is an indication of a firm's market liquidity and ability to meet creditor's demands. Acceptable current ratios vary from industry to industry and are generally between1.5 and3 for healthy businesses. If a company's current ratio is in this range, then it generally indicates good short-term financial strength. If current liabilities exceed current assets (the current ratio is below1), then the company may have problems meeting its short-term obligations. If the current ratio is too high, then the company may not be efficiently using its current assets or its short-term financing facilities. This may also indicate problems in working capital management.
Low values for the current or quick ratios (values less than1) indicate that a firm may have difficulty meeting current obligations. Low values, however, do not indicate a critical problem. If an organization has good long-term prospects, it may be able to borrow against those prospects to meet current obligations. Some types of businesses usually operate with a current ratio less than one. For example, if inventory turns over much more rapidly than the accounts payable become due, then the current ratio will be less than one. This can allow a firm to operate with a low current ratio.
If all other things were equal, a creditor, who is expecting to be paid in the next12 months, would consider a high current ratio to be better than a low current ratio, because a high current ratio means that the company is more likely to meet its liabilities which fall due in the next12 months. You should view the relation between the operation cycle period and the current ratio.
Current Ratio measures the ability of your organization to pay all of your financial obligations in one year.
Well, already answered by experts>>>>>>>>>>>
It is a financial ratio that shows the proportion of current assets to current liabilities. The current ratio is an important measure of liquidity because short-term liabilities are due within the next year.
Current assets(cash/account receivables/inventory) divided by current liabilities(account payable/salaries payable etc). it shows ability of the business to meet it short term obligations
the ratio is used to give an idea of the company's ability to pay back short term assets
Miss Elke Woofter gave the great and right answer for your question MR vinod .so i agree with her.
An indication of a company's ability to meet short-term debt obligations; the higher the ratio, the more liquid the company is. Current ratio is equal to current assets divided by current liabilities.
Agree with the valuable answers given by experts
Thanks
Current ratio is a financial ratio which measures the financial resources of a firm to pay its debts in certain period which will be measured as Current Assets / Current Liabilities of a firm.
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