current ratio

Definition

Current Ratio
The Current Ratio is a liquidity measure that assesses a company’s ability to meet its short-term obligations using its short-term assets. By dividing current assets by current liabilities, this ratio indicates whether the company has sufficient assets to cover immediate debts and operational needs. A higher current ratio suggests a comfortable liquidity position, reducing the risk of financial distress, whereas a lower ratio might raise concerns about potential cash flow issues. Investors, creditors, and analysts look to the current ratio as a straightforward indicator of operational efficiency and financial stability, using it to evaluate the short-term health of businesses and their readiness to handle unforeseen expenses or economic fluctuations.

See also