Current ratio
What the company will turn into cash within a year, divided by what it must pay within a year.
Worked example · a round-number company
Current assets$3.0B÷Current liabilities$2.0B=Current ratio1.5xHow to read it
↑Higher is better. Up to a point; very high can mean idle cash.
Example Co. 1.5x
Under 1x1x to 2xOver 2x
Under 1x can be tight, though some businesses run that way safely.
Keep in mind
- Inventory counts as a current asset even if it would be hard to sell quickly.