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What does a high current ratio mean?

The higher the current ratio, the more liquid a company is. However, if the current ratio is too high (i.e. above 2), it might be that the company is unable to use its current assets efficiently. A higher current ratio indicates that a company is able to meet its short-term obligations.

What is a current ratio?

The current ratio is sometimes called the working capital ratio. The current ratio compares all of a company’s current assets to its current liabilities. The current ratio helps investors understand more about a company’s ability to cover its short-term debt, which can be used for comparisons with competitors and peers.

What is a good current ratio?

What counts as a good current ratio will depend on the company’s industry and historical performance. Current ratios over 1.00 indicate that a company's current assets are greater than its current liabilities, meaning it could more easily pay of short-term debts. A current ratio of 1.50 or greater would generally indicate ample liquidity.

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