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##### Asked by: Ximei Toaquiza

business and finance debt factoring and invoice discounting# What is a company's current ratio?

Last Updated: 26th February, 2020

**current ratio**is a liquidity

**ratio**thatmeasures a

**company's**ability to pay short-termobligations orthose due within one year. It tells investors andanalysts how a

**company**can maximize the

**current**assets on its balancesheet to satisfy its

**current**debt andotherpayables.

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Simply so, what is a good current ratio for a company?

Acceptable **current ratios** vary from industrytoindustry and are generally between 1.5% and 3% forhealthybusinesses. If a **company's current ratio** is in thisrange,then it generally indicates **good** short-termfinancialstrength.

Additionally, what does a good current ratio mean? A **current ratio** of between 1.0-3.0 isprettyencouraging for a business. It suggests that the businesshasenough cash to be able to pay its debts, but not too muchfinancetied up in **current** assets which **could** bereinvestedor distributed to shareholders.

Similarly one may ask, how do you interpret current ratio?

If **Current** Assets > **Current**Liabilities,then **Ratio** is greater than 1.0 -> adesirable situation tobe in. If **Current** Assets =**Current** Liabilities, then**Ratio** is equal to 1.0 ->**Current** Assets are justenough to paydown the short termobligations.

What affects current ratio?

The operations **current ratio** is obtainedbydividing total **current** assets by the total**current**liabilities and expressed as that result to one.Example: Total**current** assets of $755,248 divided by total**current**liabilities $359,342 =2.10:1. For every one dollarof**current** debt the is 2.1 dollars of**current**assets.