How to determine if a company can really pay off its debts? This is a question many people want to ask.

A company's liabilities come in many forms—bank loans, short-term working capital, accounts payable to suppliers... a jumble of everything. Those due within one year are called current liabilities.

The company's assets are similar. Cash, marketable financial assets, money owed by customers, inventory piled up in warehouses... things that can be converted into cash in a relatively short period, collectively called current assets.

**A simple formula can reveal the clues:**
Current Ratio = Current Assets ÷ Current Liabilities

This number reflects the company's short-term debt-paying ability. What does it mean if the current ratio is below 1? It indicates that the company's cash on hand plus assets that can be quickly sold are not enough to cover current liabilities. If creditors come knocking for repayment, it could be quite awkward.

When facing this kind of dilemma, there are usually a few options:

**Option 1: Generate cash quickly.** If the company's operating cash flow is continuously flowing in, it can still manage to turn over. But the problem is, once you need to consider this, it often means operating cash flow is already tight or even negative.

**Option 2: Bring in new blood.** Public companies can raise new funds and new shareholders through a private placement, easing cash pressure. However, the process of a private placement is complex and time-consuming...

Understanding the logic behind these financial indicators is much more practical than just looking at the numbers.