5 Most Important Financial Ratios to Analyze a Company

3. Current Ratio

Number of Mentions: 4

The current ratio is an important financial ratio to assess the performance of a company. The current ratio is a liquidity ratio and helps assess how liquid a company is in meeting its day-to-day expenses. The current ratio is calculated by dividing the total current assets of a company by its current liabilities. A current ratio above 1 indicates that a company is liquid or has enough cash to meet day-to-day expenses. Since the current ratio also includes the inventory, a company having a high inventory may also report a strong current ratio. However, in such cases, the current ratio may neglect the fact that the company is not making enough sales to have a high inventory level sitting idle.