A ratio of current assets in relation to
current liabilities that determines whether
a business can meet short-term obligations.
This ratio is derived from information
contained in the balance sheet. The formula
is expressed as follows:
Current Ratio =
Current Assets ÷ Current Liabilities
The current ratio
calculation must be interpreted with care.
Due to the nature of real estate
transactions, closings can be scheduled into
the future. This information is not normally
provided on a brokerage balance sheet, given
the prevailing method of accruing income
derived from real estate trades. In fact,
commission receivables can be somewhat
misleading.
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