How to Calculate Current Ratio?

The current ratio is a measure of liquidity. The short-term assets should be greater than long term liabilities because they have the potential to turn into cash within one year or less, while debts may take up more time depending on when you pay them back. The quick test: If your balance sheet shows that there's not much money available in terms of loans and other debt instruments (i.e., only what comes from sales), then something might need changing before anything else gets promoted. The formula is: Current ratio = Current assets / Current liabilities

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