Current Ratio
How many times the assets convertible to cash within a year cover the debts due within a year — a measure of short-term ability to pay.
Current Ratio = Current Assets ÷ Current Liabilities
At 1 or above, the debts due within a year are considered coverable with short-term assets.
In plain terms
It looks at how many times the assets a company can turn into cash within a year (current assets: cash, receivables, inventory, etc.) cover the debts it must repay within a year (current liabilities).
A current ratio of 2 means the company has twice as much soon-usable assets as the debts coming due soon. It shows whether near-term funding is tight or comfortable.
What it tells you
If the debt ratio looks at the "long-term debt structure," the current ratio looks at "immediate ability to pay." It gauges whether short-term debts can be covered without strain.
If the current ratio falls below 1, it means the debts due within a year cannot be fully covered by soon-usable assets, which is read as a sign of short-term funding pressure.
Formula
Current Ratio = Current Assets ÷ Current Liabilities (Current = usually within one year)
What high or low means
At 1 or above, the debts due within a year are considered coverable with short-term assets.
If it is very high (e.g., 5x), it is stable, but it can also be read as cash being piled up rather than put to work in the business.
If current assets include a lot of slow-moving inventory or receivables that may not be collected, actual ability to pay can be lower even with a high current ratio. A stricter measure that excludes inventory is the quick ratio.
Normal levels differ by industry (retail and manufacturing, which carry a lot of inventory, tend to show lower figures). Comparing numbers without industry context can be misleading.
It is a balance sheet figure at a single point in time, so it can swing with seasons or funding schedules.
Metrics to read alongside
See it in real stocks
Search US stocks on Stocklore to see Current alongside the sector benchmark.
This explanation is for information and reference only and is not a recommendation to buy or sell any security. Investment decisions and their consequences are your own.