Current ratio formula diagram. This is one of the top business frameworks helping clients improve on their approach to strategy, project management, IT, HR, internal processes and client experience.The value of the current ratio is calculated by dividing current assets by current liabilities. More precisely, the general formula for current ratio is: current_ratio = current assets / current_liabilities.
What is the ‘Current Ratio’. Current Ratio = Current Assets / Current Liabilities A current ratio that is in line with the industry average or slightly higher is generally considered acceptable. A current ratio that is lower than the industry average may indicate a higher risk of distress or default.
Hence, the current ratio for Company A is 2.5 times while Company B is only 0.75 times. What this indicates is that for each dollar of current liabilities, Company A has $2.5 of Current Assets. This shows Company A has sufficient current assets to pay off its current liabilities.