Current ratio is current assets divided by current liabilities — a basic liquidity measure showing whether the company can meet short-term obligations. A ratio of 2.0 means $2 of current assets per $1 of current liabilities. Healthy current ratios vary by industry: 1.5-3.0 for most. Below 1.0 signals potential liquidity problems; above 3.0 may indicate inefficient capital deployment (too much cash, too much inventory). The Quick Ratio (acid-test) is more conservative — excludes inventory from current assets, focusing on truly liquid items. Both ratios are point-in-time snapshots; trend analysis is more revealing.
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Current Ratio
August 22, 2026 · Aditya Gupta
Accounting
Related terms
Accounts Payable
Accounts Payable (A/P) is money a company owes to suppliers for goods or services received but not yet…
Accounts Receivable
Accounts Receivable (A/R) is money owed to a company by customers for goods or services delivered on credit.…
Accrual Accounting
Accrual accounting recognizes revenues when earned (regardless of cash receipt) and expenses when incurred (regardless of cash payment)…
Accrued Expense
An accrued expense is a cost recognized in the income statement before cash is paid — recorded as…
Amortization
Amortization is the systematic allocation of intangible asset cost over its useful life — analogous to depreciation but…
Audit
An audit is an independent examination of a company's financial records, internal controls, and statements — typically conducted…
