# Liquidity Ratios

## Current Ratio (Working Capital Ratio)

Financial Ratios assess how well a business is doing, they usually involve comparing performance against the amount of money invested in the business. Liquidity ratios examine whether a business has enough money to pay the money it owes.

In this article we look at how to calculate the current ratio, which is one of two liquidity ratios; the other liquidity ratio is called the Acid Test Ratio.### How Do You Calculate The Current Ratio?

The current ratio is sometimes called the working capital ratio. It is calculated by dividing current assets by current liabilities.

**Current Ratio** Current Assets

= _________

Current Liabilities

### Example

For example if my current assets are £4000 and my current liabilities are £2000 I would work out my current ratio as follows

Current Assets 4000

_________ = _________ = 2

Current Liabilities 2000

### How to write Liquidity Ratios

As Liquidity ratios are expressed against 1, the ratio for the example above is 2:1. This means that in the example there is enough money to pay the liabilities twice.