Current Ratio

Current ratio is a liquidity metric that measures a business’s ability to pay its short-term obligations with its short-term assets.

Formula:

Current Ratio = Current Assets / Current Liabilities

Interpretation:

• Above 1.0: Indicates the company can cover its short-term liabilities.

• Below 1.0: Suggests potential liquidity issues.

Example:

A UAE logistics company with AED 800,000 in current assets and AED 400,000 in current liabilities has a current ratio of 2.0, signifying strong short-term liquidity.