How this number is made
The current ratio is a rough look at whether short-term assets cover short-term bills. A number above 1 means they do, on paper. Inventory that will not sell quickly can make the ratio look safer than the cash is.
- Current means due or usable within a year.
- The quick-ratio page drops inventory if you want a stricter look.
Formula
Current ratio = current assets ÷ current liabilities.
Worked example
With the figures already in the form, current ratio is 2.00.
Questions
Is 2 required?
No. Some businesses run fine near 1. Some lenders want more. The ratio without the context of the business is just a ratio.
What is working capital?
Current assets minus current liabilities, shown in the row. The ratio is that gap as a multiple.