What is Current ratio?

The current ratio is a financial ratio that measures a company's ability to pay its short-term debts and obligations using its current assets. The ratio is calculated by dividing a company's current assets by its current liabilities. The higher the current ratio, the more capable a company is of paying its debts in the short term. A ratio of 1 is considered to be healthy, which means that a company has an equal amount of current assets and current liabilities. A ratio of less than 1 may indicate that a company is having difficulty paying its short-term debts and obligations, while a ratio of more than 1 may indicate that a company has excess liquidity.