Current Ratio

The Current Ratio is a liquidity ratio that measures a company's ability to pay short-term obligations or those due within one year. It is calculated by dividing the company's current assets by its current liabilities. In this formula, current assets include assets that are expected to be converted into cash, sold, or consumed within a year, such as cash, marketable securities, and inventory. Current liabilities are the company's debts or obligations that are due within one year, such as accounts payable, wages, taxes payable, and current portions of long-term debt. A higher current ratio indicates a better liquidity position, meaning the company is more capable of paying its obligations. This ratio is particularly important for creditors and investors as it provides a clear insight into the company’s short-term financial health and operational efficiency.