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
Accounting is the systematic process of recording, classifying, summarizing, and reporting financial transactions to provide useful information for business decisions, tax compliance, and stakeholder reporting.
GAAP stands for Generally Accepted Accounting Principles—the standard framework of rules, conventions, and guidelines for financial accounting in the United States. Set by the Financial Accounting Standards Board (FASB), GAAP ensures that financial statements are consistent, comparable, and transpar
Estimated tax payments made four times per year to the IRS and state agencies, covering income tax and self-employment tax on earnings without withholding.
A fiscal year is the 12-month period a business uses for accounting and financial reporting. It doesn't have to match the calendar year (January–December). Some businesses choose a fiscal year that aligns with their natural business cycle—like a retailer ending in January after the holiday season wr
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