Current Ratio

Current Ratio (also known as Working Capital Ratio) reflects the company's ability to cover short-term liabilities with current assets.

$$Current\;Ratio = \frac{Current\;Assets}{Current\;Liabilities}$$

Generally, a ratio between 1.5 to 2 is considered good, indicating a strong short-term financial position. A ratio above 2 suggests that the company may not be efficiently utilizing its current assets. On the other hand, if current liabilities exceed current assets (ratio less than 1), the company may face difficulties in meeting short-term obligations, potentially leading to liquidity issues. However, this situation may not necessarily indicate severe problems if the liabilities can be managed with longer-term perspectives.