What is the formula for the current ratio?

The current ratio is a financial metric used to evaluate a company's ability to cover its short-term liabilities with its short-term assets. The formula for the current ratio is indeed current assets divided by current liabilities. This ratio provides insights into the liquidity position of a business, reflecting how well it can meet its obligations that are due within one year.

By using this ratio, stakeholders can assess the company's operational efficiency and short-term financial health. A current ratio greater than 1 typically indicates that the company has more current assets than current liabilities, suggesting a cushion to cover short-term debts. Thus, using the formula of current assets divided by current liabilities accurately captures this important financial aspect.