The current ratio checks whether short-term assets cover short-term bills.
▶ Watch: Current Ratio explained in 24 seconds
What it is
The current ratio is a liquidity measure that compares current assets (cash, receivables, inventory, and other items expected to convert to cash within a year) against current liabilities (bills due within a year). A ratio of 2 means the company has two dollars of short-term assets for every dollar of short-term obligations. It answers whether near-term debts can be met without raising new financing.
Why it matters
It is a quick check on short-term financial health and the risk of a cash crunch. A ratio below 1 means current liabilities exceed current assets, which can signal liquidity pressure, while a very high ratio may mean cash or inventory is sitting idle. Because it includes inventory, which can be slow to sell, it is a looser test than the quick ratio.
How it's calculated
Divide total current assets by total current liabilities, both from the balance sheet.
How Quintarthai uses it
The current ratio is listed in the Liquidity group of the Ratios tab on a company's deep-analysis page, and you can screen the North-American universe by it in the Stock Screener.
Cross-border note. IFRS and US GAAP classify some items (such as certain deferred or current/non-current splits) slightly differently, so the current-asset and current-liability totals can vary modestly between Canadian and US filers.
FAQ
What is a good current ratio?
A ratio comfortably above 1, often around 1.5 to 2, is generally seen as healthy, meaning short-term assets exceed short-term obligations. The ideal level depends on the industry and how quickly assets like inventory turn into cash.
How is the current ratio different from the quick ratio?
The current ratio includes all current assets, including inventory and prepaid expenses. The quick ratio strips out the least liquid items like inventory, giving a stricter view of immediate liquidity.
Check your understanding
Why is the current ratio considered a looser liquidity test than the quick ratio?
The current ratio includes all current assets such as inventory, which can be slow to sell, making it a less conservative test than the quick ratio that strips inventory out.