Current ratio

Total current assets divided by total current liabilities. The current ratio gives an indication of a business’s ability to pay its short-term liabilities. A ratio less than 1 indicates that current liabilities are greater than current assets and that the business may struggle to pay its short-term liabilities. A ratio higher than 1 means a business should be able to pay its short-term liabilities. The ability to meet current liabilities in the short-term is often dependent on how liquid the current assets are.