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Balance SheetUpdated Jun 1, 2026

Current Ratio

Current assets divided by current liabilities — a quick read on whether short-term bills can be paid with short-term assets.

Formula

Current ratio = current assets ÷ current liabilities

Example

Same manufacturer

Setup
Current assets $600M; current liabilities $400M.
Calculation
600 ÷ 400 = 1.5
Takeaway
1.5× current ratio. For every $1 due within a year, the business has $1.50 of short-term assets to cover it.

What it is

The current ratio takes everything that can become cash within a year and divides by everything that needs paying within a year.

  • A ratio above 1.0 means short-term assets cover short-term liabilities.
  • A ratio below 1.0 means the business is leaning on something else (longer-term financing, new revenue) to meet its near-term bills.

Industry context

Healthy current ratios vary by industry. A grocery chain can run a current ratio well below 1.0 because customer payments arrive in real time while supplier payments are deferred. A pharma company might prefer a current ratio of 2.0+ because product cycles are long and lumpy.

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