Articles on Stock markets

News, Research and Analysis

Help Center
Investment Portfolios
Investment Terminology and Instruments
Technical Analysis and Trading
Cryptocurrencies and Blockchain
Retirement Accounts
Personal Finance
Corporate BasicsBasicsCorporate StructureCorporate FundamentalsCorporate DebtRisksEconomicsCorporate AccountingDividendsEarnings

What is the Current Ratio/Liquidity Ratio?

The current ratio is a measure of a company’s immediate liquidity, calculated by dividing current assets by current liabilities.

The value of this ratio lies in determining whether a company's short-term assets (cash, cash equivalents, marketable securities, receivables and inventory) are sufficient enough to pay-off its short-term liabilities (notes payable, current portion of term debt, payables, accrued expenses and taxes). Generally speaking, the higher the current ratio, the better.

It means a company is flush with cash and is also positioned better to weather an unexpected shock.

Keywords: liquidity, taxes, current liabilities, current assets, cash equivalents, current ratio, liquidity ratio,