Current ratio
In one sentenceCurrent assets divided by current liabilities, giving a quick indicator of the business's ability to meet its short-term obligations.
Simply put
The ratio tells you how many riyals of current assets stand against each riyal you must pay within a year. If it is below 1, short-term assets are not enough to cover short-term obligations.
The right ratio depends on the business: a supermarket sells for cash and turns its inventory quickly, so it can live with a lower ratio than a factory that sells on credit. Compare it with your own business and your previous years, not with a fixed number.
Worked example
An auto parts store has current assets of 800,000 SAR and current liabilities of 500,000 SAR.
Current assets800,000 SAR
Current liabilities500,000 SAR
Current ratio = 800,000 ÷ 500,0001.6 times
Formula: Current assets ÷ current liabilities
Don't confuse it with
Quick ratioThe quick ratio excludes inventory from the numerator, so it shows whether you can pay without waiting to sell the goods.
in FullScreen ERP
The statement of financial position in the final statements gives you the current assets and liabilities to calculate the ratio. General accounts