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What Is Current Ratio?
By Seedly  •  July 6, 2020

What Is Current Ratio?

The current ratio measures a company’s ability to pay its financial obligations within the year.  It is calculated by taking its current assets divided by its current liabilities.
Current Ratio = Current Assets / Current Liabilities
Current assets include things like inventories, trade receivables, and cash and cash equivalents. Meanwhile, current liabilities include short-term borrowings and trade payables. Those items mentioned above can be found under the balance sheet of a company’s financial statements.

How to Make Sense of a Company’s Current Ratio?

A current ratio above one suggests that the company is capable of meeting its obligations for the year. A ratio below one suggests that the company would be unable to pay off its obligations if they come due. Too high a ratio is not necessarily good as it shows that the company is not utilising its assets efficiently.

Calculating the Current Ratio of a Listed Company

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By Seedly
Launched in 2016, Seedly helps users make smarter financial decisions with its budgeting app which allows its 40,000 users to sync up their financial accounts and better manage their cash-flow. Last year, we introduced a new community feature which allows users to crowdsource knowledge from peers before making a financial decision.
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