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Talha Shaikh AM Accounts

Current Ratio

Asked on April 29, 2020

So i am revising this "Ratio Analysis" topic and a question pops right up in my mind Why Current Ratio = Current Assets/ Current Liabilities Why not Current Ratio = Current Liabilities/ Current Assets What is the concept here :-?

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Ryan T RM • April 29, 2020

The Current Ratio is an liquidity ratio, i.e your trying to figure out how many times over your current assets can cover your current liabilities. If it was flipped the it would be an illiquidity ratio, how many times your current liabilities outweigh your current assets.

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Talha Shaikh AM Accounts • May 12, 2020

Thanks Mate !!

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