What is a current ratio?

The current ratio is a financial metric used to evaluate a company's ability to pay off its short-term liabilities with its short-term assets. It is calculated by dividing a company's current assets by its current liabilities. A current ratio of 1 or higher indicates that a company has enough current assets to cover its current liabilities. A higher current ratio is generally seen as a positive sign of a company's financial health, as it suggests that the company is able to meet its short-term obligations.

A current ratio is a financial metric used to assess a company's short-term liquidity. It measures the company's ability to meet its current liabilities, such as accounts payable, short-term loans, and other obligations due within the next 12 months, with its current assets, such as cash, cash equivalents, accounts receivable, and inventory.

The current ratio is calculated by dividing the company's current assets by its current liabilities. A current ratio of 2:1 or higher is generally considered to be healthy, as it indicates that the company has enough current assets to cover its current liabilities by at least twice. A current ratio of less than 1:1, on the other hand, may indicate that the company is at risk of not being able to meet its current obligations.