Current ratio

The current ratio measures whether your business has enough current assets to meet its current debts—with a margin of safety for possible losses such as inventory shrinkage or uncollectable accounts. The current ratio is computed from the balance sheet by dividing current assets by current liabilities. A generally popular rule of thumb for the current ratio is 2 to 1, but whether a specific ratio is satisfactory depends on the nature of the business and the characteristics of its current assets and liabilities.