A company's current ratio increased from 1.23 to 1.45. What does this mean?
The current ratio is a financial metric used to assess a company's short-term liquidity and its ability to meet its short-term obligations. It is calculated by dividing a company's current assets by its current liabilities.
In this case, where the current ratio increased from 1.23 to 1.45, it suggests that the company's liquidity has improved. A higher current ratio indicates that the company has a stronger ability to cover its short-term liabilities with its current assets.
To calculate the current ratio, you need two pieces of information: the current assets and current liabilities of the company. These can typically be found in a company's balance sheet, which is a financial statement that presents a snapshot of its financial position at a given point in time.
To calculate the current ratio, you take the total current assets of the company and divide it by the total current liabilities. The resulting ratio provides an indication of the company's short-term financial health, with a higher ratio generally being considered more favorable.
To summarize, an increase in the current ratio from 1.23 to 1.45 suggests that the company has a stronger ability to meet its short-term obligations, indicating improved liquidity.