Indicators of a firm’s ability to meet short – term financial obligations, it is the ratio of current assets to current liabilities. Though every industry has its range of acceptable current – ratios, a ratio of 2 : 1 is considered desirable in most sectors. Since inventory is included in current assets, acid test ratio is more suitable measure where stability of inventory is questionable.
Formula for calculating Current Ratio is
Current ration =Current Assets / Current Liabilities.