ponnie
1 Answer
Chiangmai
Current Ratio = to current assets divided by current liabilities
In this case, your current assets would be $30,000 ($45,000 could be your total assets, including long term assets like machinery as well), and your current liabilities would be $9,000. Therefore, your answer is derived as follows:
30,000 divided by 9,000 or 3.333 times.
Generally, investors as well as bankers like to focus on on current ratio (the higher the number, the better) for the simple reason if the company should default on the loan, how quickly could the banks convert short term assets into cash, or conversely, how liquid this company truly is.
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