What is the current ratio ?

The current ratio is referred to as the working capital ratio. It is also the liquidity ratio that indicates the company’s ability to meet its obligations. The ratio compares liquid assets by short term or long term borrowings and current liabilities. 

It also indicates what will be due for the payment in the given time period. In case the current ratio is above 1, the company is considered to be capable of paying its short term obligations. The higher the ratio, the more capable they can pay off their debts.

The liquidity ratio is calculated by dividing the current assets by the current liabilities. The first step in liquidity ratio analysis is to get the company’s current ratio, showing the number of times the firm can pay the debt obligations based on the assets. It indicates a short period of fewer than 12 months.