GlossaryCurrent Ratio

Current Ratio

Whether a company can cover its bills due within a year.

The current ratio divides current assets by current liabilities — a basic liquidity check on whether a company has enough short-term resources to cover what it owes in the next twelve months.

The formula

Current AssetsCurrent Liabilities
= Current Ratio

Why it matters

  • Below 1.0× means short-term liabilities exceed short-term assets — a potential liquidity warning sign.
  • Very high ratios aren't necessarily good — they can mean cash sitting idle instead of being deployed.
  • Best read alongside the cash position and debt maturity schedule, not in isolation.

How to read it

< 1.0×Liabilities exceed assets due within a year — liquidity risk
1.0×–2.0×Healthy working-capital buffer
> 3×Very conservative, or cash sitting idle

Strongest short-term liquidity buffers

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