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  •     QAD Glossary

  • Current Ratio
    The Current Ratio represents the company’s ability to pay back its short-term liabilities with its short-term assets. Short-term liabilities consist of debt and payables while short-term assets consist of cash, inventory, and receivables. The higher the current ratio is, the more capable the company is of paying its obligations. If the current ratio is under 1, a company cannot pay off its obligations if they came due at that point. While this ratio shows that a company is not in good financial health, it does not necessarily mean that it is going bankrupt because there are many ways to access financing.
    The current ratio can give you a sense of the efficiency of a company’s operating cycle or its ability to turn its product into cash. Companies that have trouble getting paid on their receivables or have long inventory turnover can run into liquidity problems because they are unable to alleviate their obligations. Because business operations differ in each industry, it is always more useful to compare companies within the same industry.
    The current ratio is also known as the liquidity ratio, the cash asset ratio, and the cash ratio. It is similar to the acid-test ratio except that the acid-test ratio does not include inventory and prepaid assets that can be liquidated. The components of current ratio, which consist of current assets and current liabilities, can be used to derive working capital, which is the difference between current assets and current liabilities. Working capital is frequently used to derive the working capital ratio, which is working capital as a ratio of sales.
    The Current Ratio is calculated as:
    Current Ratio = Current Assets / Current Liabilities
    Navigation
    The Current Ratio for the Last 12 Months chart is linked to a grid that shows the current ratio details.

    Navigation Overview for the Current Ratio
    Current Ratio for the Last 12 Months Chart
    This chart shows the current ratio for the last 12 months for the entity and currency type that you select from the parameter bar.
    Note: The source for this chart is the GL Report Line Fact table.

    Current Ratio for the Last 12 Months Chart
    Current Ratio for the Last 12 Months Grid
    This grid, which shows the amounts used to calculate the current ratio, contains the following columns:
    Fin Month
    Fin Month Name
    Formula
    Currency Type
    Entity Code
    Current Assets
    Current Ratio
    Current Liabilities

    Current Ratio for the Last 12 Months Grid