Current Ratio
How many times the debt due within a year the assets convertible to cash within a year cover — a metric for short-term ability to pay.
In plain terms
It looks at how many times the debt due within a year (current liabilities) the assets a company can turn into cash within a year (current assets: cash, receivables, inventory, etc.) cover.
A current ratio of 2 means there are twice as many soon-usable assets as soon-due debt. It shows whether the near-term cash situation is tight or comfortable.
What it tells you
If debt-to-equity looks at "the long-term debt structure," the current ratio looks at "the ability to pay right now." It gauges whether short-term debt can be covered without strain.
When the current ratio drops below 1, it means the debt due within a year cannot be fully covered by soon-usable assets, 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, debt due within a year is read as coverable by short-term assets.
Too high (e.g. 5x) is stable, but can also be read as cash piled up rather than put to work in the business.
If current assets hold a lot of slow-selling inventory or collectible-at-risk credit, the real ability to pay can be weak even with a high current ratio. It helps to also look at a stricter yardstick that excludes inventory (quick ratio).
Normal levels differ by industry (inventory-heavy retail and manufacturing tend to run low). Comparing numbers without industry context can mislead.
Being a point-in-time balance-sheet value, it can swing with the season or funding schedule.
Metrics to read alongside
See it in real stocks
Search US stocks on Stocklore to see Current and other financial metrics alongside the sector average.
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.