Current Ratio

It answers whether you have enough cash and near-cash assets to pay bills due in the next year.

Formal definition

Current ratio equals current assets divided by current liabilities, measuring short-term liquidity.

Why it matters

A ratio below 1.0× means short-term obligations exceed short-term assets — bonding companies and banks often decline or require covenants.

Where you see it

• SBA and term loan underwriting
• Contractor bonding applications
• Vendor credit reviews
• Quarterly balance sheet analysis
• Introductory accounting and finance courses

Worked example

1. Current assets:
2. Current liabilities:
3. Current ratio =
4. Interpretation: For every

How Business metrics calculates it

Current assets ÷ Current liabilities.

The range we use for status labels

On Business metrics, the status band for this KPI is roughly 1 to 99. Higher values are generally healthier in this band. Your niche can sit outside it honestly — the label is a prompt to read the coaching, not a certificate.

Where people fool themselves

A current ratio above 1 can still be a trap if “current assets” are slow receivables from one customer. Quick ratio exists because inventory and sticky AR are not payroll.

Run it on your own numbers: Seeking a Loan.