Technical definition
Current assets divided by current liabilities, used as an indicator of short-term coverage.
How it works
The ratio compares near-term resources with near-term obligations. Trend, industry, seasonality and asset quality determine whether a particular value is comfortable or concerning.
Everyday example
Current assets 90,000 divided by current liabilities 60,000 gives a current ratio of 1.5.
Common pitfall
A high ratio may reflect obsolete inventory or slow receivables rather than strong liquidity.