Financial ratios allow you to break down your company's financial statements and see how it is performing from different angles. Whether you are creating a proposal for new investors, seeking bank financing or want compare your company to another, financial ratios provide a way to simplify a lot of financial information quickly. There are many performance related ratios, but several are commonly analyzed and discussed among business owners and potential investors.
Current Ratio: it’s a widely used measure for evaluating a company’s liquidity and short-term debt-repayment.
Use the current ratio to assess your company's ability to meet its financial obligations. Calculate the ratio by dividing the current assets by the current liabilities; both these figures are from the balance sheet. Assets and liabilities are "current" if they are receivable or payable within one year. A current ratio of two or higher shows your current assets can likely cover current liabilities as they come due.
Current ratio = current asset
Current liabilities
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