What is the current ratio?
The current ratio is a financial ratio that measures the ability of a business to pay its short-term debts and obligations. It is calculated by dividing the total current assets of a business by its total current liabilities. The higher the current ratio, the more able a business is to pay its short-term debts and obligations.
Why is the current ratio important?
The current ratio is important for several reasons. First, it provides a snapshot of a business's financial health, and can indicate whether it has the funds and resources to meet its short-term obligations. Second, it can be used to compare the financial performance of a business over time, and to compare it to other businesses in the same industry. Third, it can help a business identify areas where it may be over- or under-leveraged, and can provide insight into potential risks and opportunities.
Benchmark values for the current ratio
The benchmark values for the current ratio can vary depending on the industry and size of a business. Generally, a current ratio of 1.5 or higher is considered healthy, while a current ratio of less than 1.0 is considered problematic. However, it's important to note that these benchmarks are not set in stone, and can vary depending on the specific circumstances of a business.