AbhishekBatabyalHelpful In: 1. Financial Accounting > Ratios What is a good current ratio? What is a good current ratio? Share Facebook You must login to add an answer. Username or email* Password* Captcha* Remember Me! Forgot Password? Need An Account, Sign Up Here 1 Answer Voted Recent Samar Sparsh 2021-10-11T14:01:11+00:00Added an answer on October 11, 2021 at 2:01 pm The current ratio is a liquidity ratio that measures a firm’s ability to pay off its short-term liabilities with its current assets. The current ratio is important because short-term liabilities are due within a period of twelve months. The current ratio is calculated using two standard figures that are shown in the company’s balance sheet: current assets and current liabilities. The formula for the same goes as: Current ratio = Current Assets / Current Liabilities A current ratio of 2:1 is considered ideal. Generally, a ratio between 1.5 to 2 is considered beneficial for the business, which means that the company has more financial resources (Current Assets) to cover its short-term debt (Current Liabilities). A high current ratio may indicate that the business is having difficulties managing its capital efficiently to generate profits. On the other hand, a lower current ratio (especially lower than 1) would signify that the company’s current liabilities exceed its current assets and the business may have difficulty covering its short-term debt. Although the definition of a good current ratio may vary in the different industry groups. Example- Where, 1) CR is 2:1, the company is in a good situation as it has double the Current Assets in order to cover the short-term debt. 2) CR is 0.5:1, the company is not in a good situation as it has only half the Current Assets in order to cover the short-term debt. 0 Share Share Share on Facebook Share on Twitter Share on LinkedIn Share on WhatsApp Related Questions What are some examples of deferred revenue expenses? Are brands intangible assets? What comes in debit side of Realisation account? What is recorded in the Realisation account? What is not included in Realisation account? What is recorded on the credit side of a Realisation account? Can accounts payable have a debit balance?