Current Liabilities are a company’s short-term financial obligations that must be paid off within an accounting year. Short-term debts, accounts payable, dividends, notes payable, and taxes are examples of these. These debts are typically settled using current assets.
The current assets to current liabilities ratio defines a company’s ability to settle its obligations due in that fiscal year. This is known as the current ratio. It is commonly used to assess a company’s ability to balance assets and liabilities.
The Quick ratio is another similar ratio used to assess a company’s ability to repay debts. The only difference is that inventory is not included in the assets when the ratio is calculated. The quick ratio is more conservative because it only includes assets that can be easily converted into cash.