Learn in the textbookBusiness Analysis Metrics
DefinitionThe current ratio (流動比率) is current assets divided by current liabilities, multiplied by 100, and is a safety indicator of short-term capacity to pay.
ExplanationCurrent assets turn into cash within one year and current liabilities must be paid within one year, so the ratio shows how many times over the resources on hand cover what is due soon. A higher value means more room to pay, and below 100% the current assets alone cannot cover the liabilities due soon.
AnalogyIt is like comparing the bills and loan repayments due within the year with your wallet and bank savings plus money a friend will soon pay back and things you will soon sell for cash.
Memory hook"Current" means items that flow in or out as cash within a year. The numerator and the denominator are both "current" items, so they match.