What Is the Current Ratio?
What Is the Current Ratio? The current ratio is a liquidity ratio that measures a company's ability to pay short-term or one-year obligations. It explains to investors and analysts how a company can optimize its current assets on its balance sheet in order to pay off its current debt and other payables. When a company's current ratio is very high in comparison to its peer group, it indicates that management may not be utilizing its assets efficiently. The current ratio is so-called because, unlike other liquidity ratios, it includes all current assets and liabilities. The current ratio is also known as the working capital ratio. Current Ratio Formula and Calculation Analysts compute the ratio by comparing a company's current assets to its current liabilities. On a balance sheet, current assets include cash, accounts receivable, inventory, and other current assets (OCA) that are expected to be liquidated or converted into cash in less than one yea