- current ratio
- = working-capital ratioThe ratio of the current assets of a business to the current liabilities, expressed as x:1 and used as a test of liquidity. For example, if the current assets are £250,000 and the current liabilities are £125,000 the current ratio is 2:1. There is no simple rule of thumb, but a low ratio, e.g. under 1:1, would usually raise concern over the liquidity of the company. Too high a ratio, e.g. in excess of 2:1, may indicate poor management of working capital; this would be established by calculating the inventory turnover ratio and debtor collection period ratio. Care must be taken when making comparisons between companies to ensure that any industry differences are recognized. The liquid ratio is regarded as a more rigorous test of liquidity.
Accounting dictionary. 2014.
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current ratio — the ratio between current assets and current liabilities. * * * … Universalium