Metric
Current Ratio
Short-term liquidity: can the company cover near-term bills?
Formula
Current Assets ÷ Current Liabilities
Definition
The current ratio compares assets convertible to cash within a year against obligations due in the same window.
Why it matters
A ratio above 1 generally means the company can meet short-term obligations without stress. Very low ratios signal liquidity risk.
Building blocks
- Current Assets
- Cash and anything convertible to cash within a year.
- Current Liabilities
- Obligations due within the next year.
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