Current ratio
Whether a company can cover the next twelve months from short-term resources.
Current assets divided by current liabilities. Below 1 means short-term obligations exceed short-term resources, which is not automatically fatal but demands an explanation.
Some excellent businesses run below 1 by design, because customers pay them before they pay their suppliers. Context is everything.
Current ratio = Current assets ÷ Current liabilitiesWhy a solvent bank can die in 48 hours
The bank lent your deposit out. That is not a scandal, it is what a bank is. It only becomes fatal when everyone asks for their money on the same afternoon.
It is the first, crudest check on whether a company can survive the year.
Panicking at a ratio below 1 without asking why, or relaxing at a ratio above 2 that is entirely unsold inventory.
Related terms
See Current ratio on a real company
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