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The current ratio helps a company measure their liquidity
The current ratio helps a company measure their liquidity
The current ratio helps a company measure its liquidity in order to meet its current obligations and payments as they become due.
In general, companies strive to have a current ratio that is one or greater because that would mean that their current assets exceed their current liabilities, so they would be likely to meet the obligations that they have coming up in the given year. That being stated, the ideal current ratio varies depending on the industry, for each type of company will have different needs and different expectations of payment. The reason it is important to be near the industry value is that a low value (below one) may be a symbol of a high risk of defaulting while a high value would lead to it likely use assets ineffectively.
When examining the current ratio, it is important to define the terms current assets and liabilities. These are assets and liabilities that the company is likely to use within the span of one year.
Examples
Examples
In 2017, Apple Inc. had $128.65 billion in current assets and $100.81 billion in current liabilities. Find the current ratio.
128.65/100.81=1.28
In 2017, Walt Disney Co. had $15.89 billion in current assets and $19.6 billion in current liabilities. Find the current ratio.
15.89/19.6=0.81
In 2017, Costco Wholesale had $17.32 billion in current assets and $17.5 billion in current liabilities. Find the current ratio.
17.32/17.5=0.98
Sources
Sources
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