
Current Ratio 
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Current Ratio equals current assets divided by current liabilities.
The current ratio measures a company's ability to meet its shortterm obligations such as paying its creditors, buying raw materials for production etc.. It also serves as an indication of a company's relative efficiency. It is calculated by dividing current assets by current liabilities.
A current ratio greater than 2.0 indicates a company's current assets  those that it can sell in the next 12 months  are twice as large as its short term liabilities. If current liabilities exceed current assets (for a current ratio less than 1) then the company may not be able to meet its shortterm debt obligations.
Generally, the higher the ratio, the more liquid the company is. This means the company would have a better shortterm financial standing to meet its debt obligations. However, an investor should also take note of a company's operating cash flow in order to get a better sense of its liquidity. A low current ratio is can often be supported by a strong operating cash flow.
On the other hand, if a company is able to operate with a low current ratio, it means that the company is more efficient about using its capital. Therefore, a low current ratio can lead to higher return of assets.
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