The current ratio assesses a company's ability to cover short-term liabilities with short-term assets. It's calculated by dividing current assets by current liabilities. A ratio above 1 indicates liquidity, while significantly higher ratios may imply underutilized assets. Ratios below 1 signal liquidity challenges. Optimal ratios vary by industry, reflecting risk and operating cycles. Investors and creditors use it to evaluate a company's short-term solvency and stability.