Current Ratio Law and Legal Definition

The current ratio is a financial ratio that measures whether or not a firm has enough resources to pay its debts over the next 12 months. It is an indication of a company’s ability to meet short-term debt obligations; the higher the ratio, the more liquid the company is. Current ratio is equal to current assets divided by current liabilities. If the current assets of a company are more than twice the current liabilities, then that company is generally considered to have good short-term financial strength. If current liabilities exceed current assets, then the company may have problems meeting its short-term obligations.