Equity · Core
Current Ratio
The current ratio is current assets divided by current liabilities — a coarse solvency-within-a-year screen.
Definition
Current ratio = current assets / current liabilities. Above 1 means the sheet’s short assets cover short claims on paper. Inventory that will not sell and receivables that will not collect inflate it.
Why it matters
Covenants and credit screens still use it. It is a first filter, not a cash forecast.
Case
A retailer with a 1.8 current ratio and unsellable seasonal inventory still needs the revolver in February. The ratio was green; the calendar was not.
How to read it
Prefer the quick ratio and a 13-week cash forecast. If current assets are mostly inventory, the current ratio is a warehouse, not liquidity.
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