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The Current Ratio

The current ratio is also known as the working capital ratio and is normally presented as a real ratio. That is, the working capital ratio looks like this:

Current Assets: Current Liabilities = x: y eg 1.75: 1

The Carphone Warehouse is our business of choice, so here is the information to help us work out its current ratio.

Consolidated Balance Sheet31 March 2001 25 March 2000
 £'000£'000
Total Current Assets315,528171,160
Creditors: Amounts falling due within one year222,348173,820

As we saw in the brief review of accounts section with Tesco's financial statements, the phrase current liabilities is the same as Creditors: Amounts falling due within one year.

Here's the table to fill in. OK, so we've done this one for you!

Current Ratio For the Carphone Warehouse
31 March 2001Current Assets: Current Liabilities315,528: 222,3481.42: 1
25 March 2000Current Assets: Current Liabilities171,160: 173,8200.98: 1

Maths revision. How did we get 1.42: 1 for the year ended 31 March 2001? All we did was to divide the current assets by the current liabilities and that gives us:

current assets = 315,528 = 1.42
current liabilities 222,348

so we automatically know that our ratio is 1.42: 1

The same with the year before:

current assets = 171,160 = 0.98
current liabilities 173,820

so the ratio is 0.98: 1

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