Current Ratio Definition

The current ratio measures a company's ability to pay short-term obligations using its current assets.

What is the Current Ratio?

It is calculated by dividing current assets by current liabilities, with a higher ratio generally indicating stronger short-term liquidity.

Analysts use the current ratio alongside other financial metrics to assess a company's financial health.

A company with $2 million in current assets and $1 million in current liabilities has a current ratio of 2.0.

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