Term · Balance Sheet & Debt
Current Ratio
In briefThe current ratio relates current assets to current liabilities and roughly measures short-term solvency. For small-caps with tight financing it shows whether short-term debt can be serviced from the funds available in the short term.
Definition
Current assets in relation to current liabilities. It measures rough short-term solvency.
How it is calculated
Formula. Current Ratio = current assets ÷ current liabilities.
Why it matters for small caps
For smaller listed companies with tight financing, the current ratio shows whether short-term obligations are covered by funds available in the short term.
Common misreadings
- A high value is not inherently positive; inventories or doubtful receivables can weaken the quality.
In the process
Frequently asked
What is the current ratio?
It shows how well short-term debt is covered by current assets. A value above one arithmetically means more current assets than current liabilities.
How is the current ratio calculated?
You divide current assets by current liabilities. The result is a rough measure of liquidity.
Is a high value always positive?
Not necessarily, since high inventories or doubtful receivables can reduce the quality. The composition of current assets matters.
Related terms
Sources
Primary
IFRS Foundation – IAS 1 Presentation of Financial Statements
https://www.ifrs.org/issued-standards/list-of-standards/ias-1-presentation-of-financial-statements/
https://www.ifrs.org/issued-standards/list-of-standards/ias-1-presentation-of-financial-statements/
Methodology
ESMA – Guidelines on Alternative Performance Measures
https://www.esma.europa.eu/document/esma-guidelines-alternative-performance-measures
https://www.esma.europa.eu/document/esma-guidelines-alternative-performance-measures
Education only, not investment advice. Ranges and thresholds are didactic orientation values, not an official standard.