Current Ratio (Working Capital Ratio) - Explained
What is the Current Ratio?
Written by J. Mance Gordon
Updated at April 19th, 2024
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What is the Working Capital Ratio?
The working capital ratio, also called the current ratio, is a liquidity ratio that measures a firm’s ability to pay off its current liabilities with current assets.
Current Ratio = Current Assets / Current Liabilities
When current assets exceed current liabilities, the Company has sufficient capital to run its day-to-day operations. In other words, it has enough capital to work.
A higher ratio is more favorable for the company.
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