Current Ratio
The current ratio is a financial metric used to measure a company’s liquidity and short-term solvency. It is calculated by dividing a company’s current assets by its current liabilities. The current ratio is also known as the working capital ratio. A ratio of 1.0 or higher is generally considered to be a good indication of a company’s financial health. A ratio of less than 1.0 indicates that the company may not be able to meet its short-term obligations.
History of the Term
The current ratio has been used as a measure of a company’s financial health since the early 20th century. It was first developed by the American economist Irving Fisher in his book The Theory of Interest (1930). The current ratio is a key component of the DuPont analysis, which is a method of financial analysis used to evaluate a company’s performance. The DuPont analysis was developed by the DuPont Corporation in the 1920s.
Comparison Table
| Company | Current Ratio |
|---|---|
| Company A | 1.2 |
| Company B | 1.5 |
| Company C | 0.8 |
Summary
The current ratio is a financial metric used to measure a company’s liquidity and short-term solvency. It is calculated by dividing a company’s current assets by its current liabilities. A ratio of 1.0 or higher is generally considered to be a good indication of a company’s financial health. For more information about the current ratio, you can visit websites such as Investopedia, The Balance, and Investing.com.
See Also
- Quick Ratio
- Cash Ratio
- Debt-to-Equity Ratio
- Return on Equity
- Gross Profit Margin
- Net Profit Margin
- Operating Profit Margin
- Return on Assets
- Asset Turnover
- Debt-to-Asset Ratio
