Current Ratio

Current Ratio

Dictionary Definition

This ratio measures a company’s ability to service its current obligations. The higher the Current Ratio, the greater the ‘cushion’ between current obligations and a firm’s ability to pay them. However, the composition and quality of current assets are also critical in analyzing an individual firm’s liquidity.

Equation

Why it Matters to You

Lenders look at this ratio to determine if you can pay your short-term debt obligations.