The Big Three Liquidity Ratios You Can’t Ignore
Current Ratio
This one’s kinda the big picture view. It measures all the current assets you have against the current debts you owe. Here’s the no-nonsense formula:
Current Ratio = Current Assets ÷ Current Liabilities
Say you’ve got $50,000 in current assets (cash, money owed to you, stuff in stock), and $25,000 in current liabilities (what you owe soon). Your current ratio here is 2. Meaning, for every dollar you owe, you’ve got two in assets—a nice, comfy cushion.
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