Current ratio
Principles of Finance glossary · Financial Statements, Markets & Working Capital
Definition
Current assets divided by current liabilities; a liquidity measure.
Current ratio in plain English
The current ratio answers one blunt question: can a company pay the bills coming due soon? "Current assets" are the things it can turn into cash within about a year (cash, money customers owe it, inventory it plans to sell), and "current liabilities" are the debts due within that same year. You divide the first by the second, so a current ratio of 2 means $2 of near-term stuff for every $1 owed soon — like checking you have twice the money in your wallet as the tab you're about to pay. Above 1 is generally reassuring; below 1 hints the company might scramble to cover short-term debts.
Practice Current ratio
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