Current Ratio
Also called: working capital ratio
What is Current Ratio?
The current ratio divides current assets by current liabilities to measure whether a business can meet its short-term obligations from short-term resources. A ratio near or below one signals strain.
Why Current Ratio matters
It is the first liquidity check a lender runs. It is also easy to misread, because a high ratio built on unsold stock and uncollected invoices is not real strength.
Current Ratio formula
Current ratio = Current assets ÷ Current liabilities
Compare it against the quick ratio to see how much depends on inventory.
How Current Ratio works in practice
Read it with the quick ratio and with stock ageing. If the gap between the two ratios is wide, most of the apparent liquidity is stock rather than cash.
Frequently asked questions
Comfortably above one for most trading businesses, with the right level varying by sector and credit cycle.