Financial Ratios

AccountingIntermediate Level

10 flashcards

Card 1 of 1010%

Question

What does the current ratio tell us about a company's liquidity?

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Answer

Definition

The current ratio measures a company's ability to pay short-term obligations with its short-term assets.

Example

If a company has current assets of $200,000 and current liabilities of $100,000, its current ratio is 2:1, indicating it has twice the assets to cover its liabilities.

Quick Tip

Think 'current' for short-term health.

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