Current ratio

Current ratio equals current assets divided by current liabilities, measuring how well a firm's short-term resources cover obligations due within the year. A ratio comfortably above 1 generally signals adequate short-term liquidity.

ByHoang TruongUpdated June 30, 2026

FrameworkRatio analysis

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A firm holds €480,000 in current assets against €200,000 in current liabilities. Splitting that €480,000 shows €200,000 exactly covering what is owed within the year, with €280,000 left as a cushion. Current ratio = €480,000 ÷ €200,000 = 2.4, meaning €2.40 of short-term assets sit behind every €1.00 owed short-term.

Where it fits

SubjectFinancial AccountingCoreTopicFinancial Statement Analysis & RatiosCore

The formula

LaTeX

\text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}}

Variables

$C u r r e n t A sse t s$: Assets expected to be converted to cash or used within twelve months (€)
$C u r r e n t L iabi l i t i es$: Obligations due within twelve months (€)

Check yourself

PracticeCORE

A firm has current assets of €360,000 (including inventory of €240,000) and current liabilities of €120,000. What is the current ratio?

Select an answer to check your understanding.