Glossary

Current ratio

Current ratio measures whether a company's short-term assets are enough to cover its short-term liabilities — a quick read on liquidity.

2 min read

Assets ÷ liabilitiesShort-term, both

Above 1Generally healthier

Definition

The current ratio divides current assets (cash, stock, money owed to you within a year) by current liabilities (what you owe within a year). A ratio above 1 means short-term assets exceed short-term debts; below 1 means they do not.

In plain terms

It answers a blunt question: if the next year's bills all fell due, could the business cover them from what it has and is owed? A figure comfortably above 1 suggests breathing room; one below 1 can flag a liquidity squeeze, even in a profitable company. It is a snapshot, not the whole story — a business can show a healthy ratio and still hit a cash-flow gap if the timing is wrong, which is where working capital finance helps. Check your own position with the working capital calculator.