Current Ratio
factor.formula
Current Ratio:
The current ratio is calculated as: total current assets divided by total current liabilities.
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The total amount of current assets at the end of the most recent reporting period, including cash, short-term investments, accounts receivable, inventory, and other assets that can be converted into cash or consumed within one year.
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The total amount of current liabilities at the end of the most recent reporting period, including short-term loans, accounts payable, notes payable, advances received, and other debts that need to be repaid within one year.
factor.explanation
The current ratio is an important indicator to measure the short-term debt repayment ability of an enterprise. It reflects the ability of an enterprise to repay its current liabilities with current assets. Generally speaking, the higher the current ratio, the stronger the short-term debt repayment ability of the enterprise and the lower the financial risk it faces. However, an excessively high current ratio may mean that the utilization efficiency of the enterprise's current assets is not high, such as too much idle cash or inventory backlog. Therefore, when analyzing the current ratio, it is necessary to conduct a comprehensive assessment based on the industry average and the characteristics of the enterprise itself. It is generally believed that a current ratio between 1.5 and 2 is ideal, but there may be large differences between different industries and enterprises. The trend of the current ratio is also worthy of attention. A continuous decline may indicate a deterioration in the debt repayment ability of the enterprise.