How to Read a Balance Sheet: Current and Quick Ratios You've
read through our abbreviated definitions of various items on the
balance sheet -- congratulations. Now we'll have some fun with
numbers and play around with these bits of information. We do
this to get the nitty-gritty details about how well the company
manages its assets and whether or not its price represents a
bargain, based on the assets it has at its disposal. The first
tool you use is called the current ratio. A measure of just how
much liquidity a company has, this number is simply the current
assets divided by the current liabilities. For instance, if
Joe's Bar and Grill has $10 million in current assets and $5
million in current liabilities, here's the formula: $10 million
current assets / $5 million current liabilities = 2.0 current
ratio As a general rule, a current ratio of 1.5 or greater can
meet near-term operating needs sufficiently. A higher current
ratio can suggest that a company is hoarding assets instead of
using them to grow the