Quick Definition

The current ratio is a liquidity ratio that measures a company's ability to pay off its short-term liabilities with its short-term assets.

Formula

Examples

• 1A company with $200,000 in current assets and $100,000 in current liabilities has a current ratio of 2.0, indicating it can cover its liabilities twice over.
• 2If a business has $500,000 in current assets but $600,000 in current liabilities, its current ratio of 0.83 suggests potential liquidity problems.
• 3An increase in a company's current ratio over time could indicate improving financial health, while a decrease might signal worsening conditions.

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