Liquidity Ratios: Current Ratio
Current Ratio is about a business’s liquidity. Liquidity is the ability of a business to pay its short-term debts — its access to cash. If a business does not have enough cash to pay for its immediate expenses (or short-term debts), it will not be able to continue trading. Therefore, liquidity is important to a business’s survival and smooth daily operations. Hence, it must be carefully managed at all times.