Current assets divided by current liabilities: whether what turns to cash within a year covers what falls due within a year.
The current ratio is a liquidity measure. It compares current assets (cash, receivables, inventory and other items expected to turn to cash within a year) with current liabilities (payables, accrued expenses, short-term debt and the current portion of long-term debt). Above 1.0 means current assets exceed what is due in the next twelve months.
Current ratio = current assets / current liabilities, both from the same balance sheet date. The quick ratio is the stricter version: (current assets - inventory) / current liabilities.
Current assets of $840,000 and current liabilities of $600,000 give a current ratio of 1.4. If $300,000 of those assets is inventory, the quick ratio is $540,000 / $600,000 = 0.9.
Slow inventory and old receivables inflate it, and a single balance sheet date can be dressed up by paying down payables just before it. The full guide is financial ratios.