Current ratio
How many units of short-term assets stand behind each unit of debt due within a year.
It is the oldest liquidity test there is and still the fastest way to see whether a company can pay next year's bills.
How it is computed here
Current assets / current liabilities
Combines more than one basis. See the note. The pipeline prefers the data vendor's published trailing-twelve-month ratio when one exists, and falls back to recomputing from the latest filed fiscal year when it does not. Those two are different measurements: the vendor figure puts twelve months of flow over the most recent quarterly balance sheet. The source trail on each figure names which path produced it. Filed under health. Higher is the stronger reading, other things equal.
The readings, and where the lines come from
| Range | Reading |
|---|---|
| below 1.00 | Short-term liabilities exceed short-term assets |
| 1.00 to 1.50 | Tight |
| 1.50 to 2.00 | Adequate |
| 2.00 and above | At or above Graham's requirement |
Graham, The Intelligent Investor (rev. ed. 1973), ch. 14 defensive-investor criteria. Graham required a current ratio of at least 2 for the defensive investor.
When it misleads
- Treats slow-moving inventory as if it were cash. Use the quick ratio when inventory is large.
- A very high ratio can mean idle capital rather than strength.
- Retailers and restaurants run below 1 by design because customers pay before suppliers do.
- Banks and insurers do not present a classified balance sheet, so there is no current ratio to compute.
Not meaningful for banks, insurers: the product prints n/m with the reason rather than a number for them.
Reads differently for REITs: the figure is shown with that caveat attached.
Questions
How is current ratio calculated?
Current assets / current liabilities. Combines more than one basis. See the note. The pipeline prefers the data vendor's published trailing-twelve-month ratio when one exists, and falls back to recomputing from the latest filed fiscal year when it does not. Those two are different measurements: the vendor figure puts twelve months of flow over the most recent quarterly balance sheet. The source trail on each figure names which path produced it.
What does current ratio tell a value investor?
It is the oldest liquidity test there is and still the fastest way to see whether a company can pay next year's bills.
When does current ratio mislead?
Treats slow-moving inventory as if it were cash. Use the quick ratio when inventory is large. A very high ratio can mean idle capital rather than strength. Retailers and restaurants run below 1 by design because customers pay before suppliers do. Banks and insurers do not present a classified balance sheet, so there is no current ratio to compute.