Measures a company's ability to pay short-term obligations.
Formula: Current Ratio = Current Assets / Current Liabilities
How to read it: 1.2–2.0 = healthy (rated Good) · above 2.0 = very liquid, possibly idle assets (Neutral) · below 1.2 = tight (Bad). Supermarkets and other fast-cash businesses run below 1 comfortably. Use current — not total — assets and liabilities.
A classic bank-loan liquidity test to ensure the company has enough assets to cover liabilities over the next 12 months.