InvestorWords.com

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. If the current assets of a company are more than twice the current liabilities, then that company is generally considered to have good short-term financial strength. If current liablities exceed current assets, then the company may have problems meeting its short-term obligations.

For example, if XYZ Company's total current assets are $10,000,000, and its total current liabilities are $8,000,000, then its current ratio would be $10,000,000 divided by $8,000,000, which is equal to 1.25. XYZ Company would be in relatively good short-term financial standing.

• Information on the Less Commonly Used Types of Insurance
• The Economy: From Boom to Recession
• Introduction to Stocks
• What is Investing?
• Purchasing Real Estate in Brazil
• "Bear Spread" Stock Option Investment Strategy

Featured Advertiser