The Calculation Current Ratio is a key metric used to measure a company’s ability to pay its short-term obligations. It is the most commonly used liquidity ratio and helps investors gauge a company’s financial health. The ratio is calculated by dividing current assets (cash, accounts receivable, inventory, etc.) by current liabilities (bills, wages, taxes, etc.). A ratio of 1 or higher indicates that a company has sufficient funds to pay off current liabilities without any help from long-term debt. Anything below 1 indicates that the company may have difficulty meeting current financial obligations and should consider reassessing their business plan.