Current ratio definition including break down of areas in the definition. Analyzing the definition of key term often provides more insight about concepts. Current ratio can be defined as: Ratio used to evaluate a company’s ability to pay its short-term obligations, calculated by dividing current assets by current liabilities. Current ratio is a liquidity calculation, a calculation do determine if a company can pay off current obligation, current liabilities using more liquid assets, current assets. The current ratio will divide current assets by current liabilities. If the current ratio is greater than one it means that the current liabilities could be paid off with current asset, current assets being at book value. If the current ratio is 2 it means that we could pay off the current liabilities 2 time over using the value of the current assets.
