Current Ratio
The current ratio measures your business's ability to pay short-term obligations. It's calculated as current assets divided by current liabilities. A ratio above 1.0 means you can cover your near-term debts.
Current Ratio Definition
The current ratio is a liquidity metric: Current Assets ÷ Current Liabilities. It tells you whether your business has enough short-term assets to cover its short-term debts.
How to Interpret the Current Ratio
Example
Current assets: $80,000 (cash + receivables + inventory)
Current liabilities: $50,000 (payables + credit cards + payroll due)
Current ratio: $80,000 ÷ $50,000 = 1.6 — healthy
Why It Matters
How to Find It in QuickBooks
Run a Balance Sheet report. Current assets and current liabilities are listed separately. Divide one by the other. QuickBooks doesn't calculate ratios automatically, but the numbers are right there.
FAQ
Q: Is a very high current ratio bad?
A: A ratio above 3.0 might mean you have too much idle cash or excess inventory that could be put to better use. Context matters.
Related Terms
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Related Terms
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