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Current ratio

Current ratio

A good way to measure a company’s economic health is to divide the total current assets on the total current liabilities. Depending on the ration, (i.e. 2:1), the fomula indicates how long the company can cover its liabilites without lending from outside financial sources.

Current assets must be at least twice the value of current liabilities to cover any undiscolsed expenses that will accumulate within the accounting period.