Current Ratio
factor.formula
Current Ratio:
The current ratio is calculated as: total current assets divided by total current liabilities.
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Current assets refer to the assets that can be converted into cash or used within one year or an operating cycle of more than one year. They mainly include: monetary funds, trading financial assets, notes receivable, accounts receivable, prepayments, inventories, etc.
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Current liabilities refer to debts that an enterprise needs to repay within one year or within an operating cycle of more than one year. They mainly include: short-term loans, notes payable, accounts payable, advance payments, employee salaries payable, etc.
factor.explanation
The current ratio is an indicator of a company's short-term debt repayment ability. The higher the ratio, the stronger the company's current assets are relative to its current liabilities, and the stronger its short-term debt repayment ability is. Generally speaking, a current ratio greater than 1 is considered normal, but there may be differences in different industries. An excessively high current ratio may mean that the company's capital utilization efficiency is not high, so a comprehensive analysis based on the company's specific situation is required. This factor is often used as an important indicator in quantitative investment to assess the company's financial health and risk level.