Current ratio
Financial Accounting glossary · Financial Statement Analysis & Ratios
Definition
Current assets / current liabilities; measures short-term liquidity.
Current ratio in plain English
The current ratio is a quick health check: can a company cover its short-term bills with its short-term stuff? You take everything the company can turn into cash within a year (current assets) and divide it by everything it owes within a year (current liabilities): current ratio = current assets / current liabilities. If it's above 1, the company has more coming in than going out soon — a good sign it won't get squeezed. It's like checking that the money in your wallet and bank account is bigger than the bills due this month.
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