GlossaryIntermediate
Current Ratio
Current assets divided by current liabilities, a standard measure of a company's short-term liquidity.
The Current Ratio divides a company's current assets (cash and other assets expected to convert to cash within a year) by its current liabilities (obligations due within a year), measuring its ability to cover short-term obligations with short-term resources.
A ratio above 1 generally suggests a company can cover its near-term obligations with its near-term assets; a ratio below 1 can be a warning sign of potential short-term liquidity strain, though context (such as the specific industry's normal working-capital cycle) matters significantly. See Kaavon's dedicated Current Ratio article for the full calculation.
Examples
- A Current Ratio below 1 means a company's near-term liabilities exceed its near-term assets, a potential short-term liquidity warning sign worth investigating further.
- The Current Ratio is a snapshot of short-term liquidity at one point in time, not a measure of a company's longer-term solvency or overall profitability.