Current ratio
The current ratio compares current assets with current liabilities: current assets ÷ current liabilities. It is one indicator of short-term liquidity and is usually expressed as a multiple or as x:1. Interpretation requires information about inventory quality, collection of receivables, payment dates and the business model. Compare trends and suitable peers rather than assuming one ideal value.
Worked example
Current assets of $120,000 and current liabilities of $80,000 give a current ratio of 1.5:1.
Common mistake
A high current ratio may reflect slow-moving inventory or overdue receivables; it does not ensure enough cash will be available on payment dates.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FA | Direct | September 2026–June 2027 |
| ACCA | K1 | Direct | July 2027–August 2028 |
| CIMA | BA3 | Direct | Official assessment-window verification pending |
| CIMA | F1 | Direct | Official assessment-window verification pending |
| CIMA | F2 | Direct | Official assessment-window verification pending |
| FIA | FFA | Direct | September 2026–June 2027 |