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.