What financial ratio is calculated as current assets divided by current liabilities?

The current ratio is calculated by dividing current assets by current liabilities. It is a basic liquidity measure that estimates whether a business can cover obligations due within roughly one year using assets expected to become cash within that period.

Current assets commonly include cash, marketable securities, accounts receivable, and inventory. Current liabilities can include accounts payable, short-term loans, accrued expenses, and other debts due soon. A ratio of 1.0 means the two totals are equal; a higher figure generally suggests greater short-term coverage, though the quality and convertibility of the assets matter.

A common mix-up is the quick ratio, which excludes or discounts less-liquid assets such as inventory. The current ratio also does not measure profitability: profit margin addresses earnings, while debt-to-equity measures financing structure. An unusually high current ratio can even signal idle cash, excess inventory, or inefficient use of working capital.