Current ratio

Imagine you have some toys that you want to share with your friends, but you want to make sure you have enough toys to share. The current ratio is like checking if you have enough toys to share with your friends.

Let's say you have 10 toys and you owe your mom 2 toys. That means you really have 8 toys to share with your friends. Your current ratio would be 8:2, which means for every 2 toys you owe, you have 8 toys to share.

In grown-up terms, the current ratio is a financial metric that helps you figure out if a company has enough easy-to-access money to pay off their short-term debts (like bills and loans) without having to sell any long-term assets (like their buildings or equipment). It's calculated by dividing a company's current assets (like cash, inventory, and money owed to them) by their current liabilities (like bills and loans they have to pay in the near future).

A good current ratio for a company is generally considered to be somewhere around 2:1, which means they have twice as much current assets as they do current liabilities. This indicates that the company is financially healthy and can pay off their short-term debts without having to sell other assets.