What is the formula for calculating the current ratio?

The current ratio is a financial metric used to assess a company's short-term liquidity and operational efficiency, indicating its ability to cover short-term liabilities with short-term assets. The formula for calculating the current ratio is current assets divided by current liabilities.

This means that by measuring current assets—such as cash, inventory, and accounts receivable—against current liabilities, which include accounts payable and short-term debt, you can determine if a company has enough resources to meet its obligations in the near term. A ratio above 1 generally suggests that the company is in good financial health, while a ratio below 1 could indicate potential liquidity problems.

The other formulas provided in the choices do not pertain to the calculation of the current ratio. For example, calculating total assets divided by total liabilities or revenue divided by expenses relates to different financial ratios that measure other aspects of financial health, such as leverage or profitability, rather than liquidity.