The current ratio is a financial metric used to measure a companys liquidity, or its ability to pay short-term obligations or those due within one year. It compares a companys current assets to its current liabilities, which are usually defined as assets that are cash or will be turned into cash in a year or less and liabilities that will be paid in a year or less. The formula for calculating the current ratio is: Current assets / Current liabilities = Current ratio. An asset is considered current if it can be converted into cash within a year or less, and current liabilities are obligations expected to be paid within one year. A current ratio above 1 indicates that the company can meet its short-term obligations, while a ratio below 1 suggests potential liquidity issues. The current ratio is also referred to as the working capital ratio. It is used as a general metric of financial health since it shows a companys ability to pay off short-term debts. However, the current ratio has some drawbacks, such as its lack of specificity, as it incorporates all of a companys current assets, even those that cannot be easily liquidated.