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.

What is the value of a current ratio (working capital ratio)?

The interpretation of the value of the current ratio (working capital ratio) is quite simple. It expresses the proportion of a company's current assets to its current liabilities. To give an example: a current ratio equal to 3 means that the company has 3 times more current assets than current liabilities.