The current ratio may be the most common calculation used to measure liquidity.
Working with your current ratio
Every industry and every business is different, but generally a current ratio of at least 2 to 1 is considered good. It is also important to understand how the components of the ratio can affect how your business is actually performing. Increases in accounts receivable and corresponding decreases in cash will not change the ratio, but may a bad sign. Likewise, an increase in inventory beyond what is needed may not be an effective use of your assets.
By monitoring changes in your current ratio over time, you can better understand the financial dynamics of your business and run it more effectively. Here is a worksheet you can use to track changes in this and other important measures.