The current ratio is a financial ratio that measures a company's ability to pay its current liabilities using its current assets. It is calculated by dividing current assets by current liabilities. For example, a current ratio of 2:1 means that a company has 2 units of current assets for every unit of current liabilities. The higher the current ratio, the better a company's liquidity position, as it indicates the company has enough assets to cover its short-term debts. Therefore, a higher current ratio is generally considered more favorable, while a lower current ratio may indicate that a company may struggle to meet its short-term financial obligations.
