# What is the ideal current and liquid ratio?

2 MinsShareFinancial ratios are important indicators for gauging a companys financial health. They show the financial position of the company, including its profitability and liqui

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Financial ratios are important indicators for gauging a companys financial health. They show the financial position of the company, including its profitability and liquidity position. The two important ratios for measuring a companys ability to pay short term obligations and liquidity are the current and quick ratios. This article covers the current ratio, quick ratio and current vs quick ratio in detail.

## Current Ratio vs Quick Ratio Difference between Current Ratio and Quick Ratio

Following are the key differences between the Current Ratio vs Quick Ratio:**Basis of DifferenceCurrent RatioQuick RatioDefinition**The current ratio is a liquidity ratio that computes the proportion of a companys current assets to its current liabilities.The quick ratio is also a liquidity ratio that computes the proportion of a companys highly liquid assets to its current liabilities.**Approach**The current ratio is comparatively a relaxed approach to determine a companys debt repayment capacity.The quick ratio is a stringent and conservative approach to determine a companys debt repayment capacity.**Consideration**Considers assets that are easily convertible to cash within a year.Considers assets that are easily convertible to cash in 90 days or earlier.**Inventory**Includes inventory. Also, the current ratio is naturally high for firms with a strong stock of inventory.Excludes inventory. Also, the quick ratio is low for firms with a strong stock of inventory.**Ideal Result**The ideal ratio is 2:1. However, anything above 1 is good.The ideal ratio is 1:1.

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