What it is:

The current ratio is the standard measure of any business' financial health. It will tell you whether your business is able to meet its current obligations by measuring if it has enough assets to cover its liabilities. The standard current ratio for a healthy business is two, meaning it has twice as many assets as liabilities.

When to use it:

The current ratio should be part of your business' basic financial planning, meaning it should be tracked monthly or quarterly. By keeping a close eye on this figure, you will recognize if it begins to get out of line. This will allow you to take early action to prevent your business from ending up in a difficult position.

The formula:

Current assets divided by current liabilities.

Calculate your current ratio:

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