Glossary
Current Ratio
Short-term assets divided by short-term liabilities.
Current Ratio = Current Assets / Current Liabilities. Measures whether the firm can cover its 12-month obligations with its 12-month assets.
Above 1.5 is generally healthy. Below 1.0 is a liquidity warning — though some industries (retail, restaurants) routinely run < 1 because their inventory turnover is weekly.
The Quick Ratio strips out inventory: (Cash + Receivables) / Current Liabilities. It's a tighter test for businesses where inventory is hard to liquidate at book value.