Definition for : Current ratio

This liquidity ratio measures whether the Assets to be converted into cash in less than one year exceed the debts to be paid in less than one year. It is obtained by dividing Current assets (less than one year) by Current liabilities (due in less than one year). Current ratio above 1 is considered to be protecting the creditors from the uncertainty of the Assets' monetisation as opposed to the contractually fixed Liabilities repayment schedule.

(See Chapter 12 Financing of the Vernimmen)

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