What Is the Current Ratio?

The current ratio measures whether a company can cover its short-term bills with its short-term assets.

Current ratio = current assets ÷ current liabilities

“Current” means within one year — cash, receivables and inventory on one side; bills, short-term debt and payables on the other.

How to read it

• Above 1 — the company has more than enough liquid assets to cover the next year’s obligations.
• Around 1.5–3 — generally healthy.
• Below 1 — short-term liabilities exceed short-term assets; the company may need to raise cash or borrow to pay its bills. Worth a closer look.
• Very high (4+) — safe, but can hint at cash sitting idle instead of being invested.

It’s a quick liquidity check, not a verdict — a strong business with steady cash flow can run below 1 comfortably (think a supermarket that sells stock before paying suppliers). A rising current ratio is one of the Piotroski F-score signals, and liquidity feeds the Altman Z-score too.