Current assets ratio

The current assets ratio measures a company's ability to pay the liabilities that it is most likely to have to pay soon with that assets that should yield cash the quickest. It is

current assets ÷ current liabilities.

As a rule of thumb, a current assets ratio of more than two is generally considered adequate, but this should be considered in the context of the company: the nature of the assets in question, the company's ability to borrow further to meet liabilities and the stability of its cash flows.

An alternative that takes account of the fact that stocks cannot necessarily be sold quickly is the quick assets ratio.

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