Current Ratio
Compares assets expected to convert to cash within a year with obligations due within a year.
Formula
Current Ratio = Current Assets / Current Liabilities
Worked example$5.4 billion of current assets divided by $3.0 billion of current liabilities gives a current ratio of 1.8.
Calculation steps
- Find current assets: $5.4 billion.
- Find current liabilities: $3.0 billion.
- Divide to get a current ratio of 1.8.
How to interpret it
A ratio above 1 suggests reported short-term assets exceed short-term obligations, but asset quality and cash timing still matter.
Industry context
Retailers with rapid inventory turnover may operate safely at lower ratios than slow-moving industrial or project businesses.
Common mistakes
- Do not assume all inventory and receivables convert quickly.
- Inspect seasonal balance-sheet timing.
- Consider available credit facilities and cash burn.