How is the current ratio calculated?

The current ratio measures a company's ability to cover its short-term obligations with its short-term assets. It is calculated by dividing current assets by current liabilities. This ratio is a liquidity ratio and provides insights into the financial health of a business, specifically its short-term financial stability. A higher current ratio indicates that a company has a greater capacity to pay off its current liabilities, which is a positive sign for creditors and investors. This key metric is essential for assessing how well a company can meet its obligations without needing to secure additional financing or sell long-term assets. The other options pertain to different financial concepts, which do not relate to the calculation of the current ratio.