Current ratio, or working capital ratio, measures a company’s ability to pay off its short-term debt with its short-term assets. The current ratio is a key financial metric used to assess a company’s liquidity. This ratio can be calculated by dividing current assets by current liabilities, as seen below.
Current Ratio = Current Assets / Current Liabilities
While there is no one-size-fits-all current ratio that businesses should aim for, generally speaking, a ratio that is greater than one is good because it shows that a business has enough current assets available to pay off its short-term debts.