This tutorial provides a comprehensive overview of the current ratio, which is a type of liquidity ratio. In this tutorial, we will learn how to calculate this ratio using a practical example. More importantly, using the Colgate Case Study, we’ll learn how to interpret the current ratio.
Download the Colgate Excel Model Ratio Analysis Template: We will use an excel template for the analysis. You can download the ratio analysis template from this link – https://www.wallstreetmojo.com/ratio-analysis-template/
What is Current Ratio?
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The current ratio is a liquidity ratio that assesses a company’s ability to repay short-term loans with maturities within a year.
Formula
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Current Ratio Formula = Current Assets / Current Liabilities.
Interpretation of Current Ratio
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– If Current Assets is greater than Current Liabilities (Ratio is greater than 1.0) – this indicates a desirable situation, i.e., the company has enough to meet its short-term obligations.
– If Current Assets = Current Liabilities (Ratio is equal to 1.0) – this indicates that the Current Assets are just enough to cover short term obligations.
– If Current Assets is less than Current Liabilities (Ratio is less than 1.0) – this indicates that the company does not have enough to meet its short-term obligations.
Links to Step by Step Financial Ratios Tutorials
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– Part 1 – Ratio Analysis:
https://www.youtube.com/watch?v=yPUb6PsVvLA&list=PLazLoBfxFADN9Qq8j8hghG9nvVBXl1V0y
– Part 2 – Vertical Analysis:
https://www.youtube.com/watch?v=7CX4F2Adubs
– Part 3 – Horizontal Analysis:
https://www.youtube.com/watch?v=4iOpN1zI0ag
– Part 4 – Trend Analysis:
https://www.youtube.com/watch?v=VLHrsLp0Jj8
What you need to do?
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Step 1: Download the Colgate Excel Model Ratio Analysis Template. This template will be used for the analysis. You can download the ratio analysis template from this link – https://www.wallstreetmojo.com/ratio-analysis/
Step 2: Please note that we are providing you with downloadable and preformatted Excel spreadsheets to assist you in understanding and applying the concepts. You will receive two templates: 1) Unsolved Colgate Model 2) Completed Colgate Model
Step 3: Start by using the “Unsolved Colgate Model Template” for analysis by following the instructions step by step.
Step 4: Good Luck! 🙂
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To know more about Current Ratio, you can go to this link:
https://www.wallstreetmojo.com/current-ratio/
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