Current Ratio

The current ratio is a financial metric that measures a company's ability to meet its short-term financial obligations or liabilities. It compares a company's current assets to its current liabilities, and indicates whether the company has sufficient current assets to cover its current liabilities.

The formula for calculating current ratio is:

Current Ratio = Current Assets / Current Liabilities

A current ratio of 1.0 or higher is generally considered to be a good indication that a company has enough current assets to cover its short-term obligations. A current ratio of less than 1.0 may indicate that a company may have difficulty meeting its current obligations.

Example:

Company A has $2 million in current assets and $1 million in current liabilities, its current ratio would be:

Current Ratio = Current Assets / Current Liabilities 

Current Ratio = $2,000,000 / $1,000,000 Current Ratio = 2.0

This means that Company A has a current ratio of 2.0, which indicates that it has $2 in current assets to cover every $1 in current liabilities.