Using The Current Ratio
a current ratio measures a company's ability to pay back its short-term obligations, which is important in determining a company's financial health. to find current ratio, divide the company's current assets which are cash, inventory and receivables by its current liabilities, its debt and other payables. a current ratio of two to one is usually considered healthy because it means a company's current assets are twice its current liabilities. acceptable current ratios vary depending on the industry. in most cases, if it's less than one, the company may have trouble paying ? its short-term obligations if they ? particular time. ? that the company is not in good financial health, it does not necessarily mean ? go bankrupt, as there are many ways to access financing. if a company's current ratio is too high, it may suggest inefficient use of current assets or short-term financing. generally, creditors ? expecting to be paid in the next twelve months are looking for higher current ratios. to creditors, this means they have a greater chance of being repaid within the expected amount of time.