The current ratio divides a company’s current assets (cash, receivables, and inventory expected to convert to cash within a year) by its current liabilities (debts and obligations due within a year). It shows whether a company has enough short-term resources to cover its near-term obligations.
For example, a company with RM60 million in current assets and RM40 million in current liabilities has a current ratio of 1.5 — it has RM1.50 of short-term assets for every RM1.00 of short-term obligations due.
This ratio is a quick screen for short-term financial health, complementing longer-term measures like debt-to-equity ratio. See the quick ratio entry for a stricter version that excludes inventory from the calculation.