Current Ratio
Current assets divided by current liabilities - short-term liquidity.
What is Current Ratio?
Measures whether a company can meet obligations due within a year. Above 1.0 means current assets exceed current liabilities. Too high can signal idle cash or excess inventory.
Current Ratio: a worked example
$4M current assets / $2M current liabilities = a current ratio of 2.0.
What is the difference between Current Ratio and Quick Ratio (Acid-Test Ratio)?
The quick ratio is the current ratio with inventory removed from the top. Inventory is the least liquid current asset.
Often confused with Quick Ratio (Acid-Test Ratio) - see Current Ratio vs Quick Ratio (Acid-Test Ratio) side by side.
More terms in Economics & Financial Reporting
Business Cycle
The recurring pattern of expansion, peak, contraction, and trough.
Leading, Coincident & Lagging Indicators
Data series that move before, with, or after the business cycle.
Deflation vs. Disinflation
Falling prices versus a slowing rate of price increases.
Currency Valuation & Exchange Rates
What one currency buys of another, and who wins when it moves.
Sovereign Debt
Bonds issued by a national government.
Trade Deficit
A country imports more goods and services than it exports.
Income Statement
Revenue, expenses, and profit over a period of time.
Balance Sheet
Assets, liabilities, and equity at a single point in time.