What's It Mean?
Current Liabilities – those amounts owed by the business which will normally be paid within the operating cycle of the business, usually 12 months. Examples of current liabilities are:
- Bank Overdraft;
- Sundry Creditors;
- Accruals;
- Loan repayments due within the next 12 months;
- Taxation payments;
- Long Service Leave for employees that is now due;
- Sick and Holiday Pay due to employees; and
- Dividends declared by a company, but not yet paid.
Current Ratio – relationship between Current Assets and Current Liabilities. This ratio is an indication of the business’ ability to meet ongoing liabilities.
It is calculated:
Current Assets
Current Liabilities
Example:
Current Assets - Total $420,000
Current Liabilities - Total $267,000
It would be said that the business had a Current Ratio of 1.57. You will find that your bank manager often uses the term "Current Ratio" because it is a key performance indicator that banks regularly use in assessing the credit worthiness of their clients or an applicant for financial assistance.