Liquidity Ratio
Financial ratio measuring ability to pay short-term debts.
Formula
Current Ratio = Current Assets ÷ Current Liabilities
Real World
During the 2020 pandemic, many hospitality businesses saw their current ratio collapse as cash dried up and short-term debts mounted, forcing emergency loans from the UK government.
Exam Focus
State the benchmark (current ratio ~1.5–2:1) and then explain whether the business's figure is too high or too low for its sector.
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