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DEFINITION of 'Current Ratio'. The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations. To gauge this ability, the current ratio considers the total assets of a company (both liquid and illiquid) relative to that companyâs total liabilities. The formula for calculating a companyâs current ratio, then, is: Current Ratio = Current Assets / Current Liabilities. The current ratio is called âcurrentâ because, unlike some other liquidity ratios, it incorporates all current assets and liabilities. The current ratio is also known as the working capital ratio.
The formula for calculating a companyâs current ratio, then, is: Current Ratio = Current Assets / Current Liabilities. The current ratio is called âcurrentâ because, unlike some other liquidity ratios, it incorporates all current assets and liabilities.