The current ratio is current assets divided by current liabilities. It is also known as a working capital ratio. This vital balance sheet ratio indicates the ability of a business to pay current bills. Why? Current assets include cash and any assets that can be converted to cash within one year. Current liabilities are due to be paid to creditors within one year. The “bankers’ rule” is a ratio of 2:1. In other words, a business should have $2 of current assets for every $1 or current liabilities.
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