Glossary
Current Ratio
Short-term assets divided by short-term liabilities.
Current Ratio = Current Assets / Current Liabilities. It measures whether a firm can cover obligations due within twelve months using assets that will convert to cash within twelve months.
Above 1.5 is generally healthy. Below 1.0 is a liquidity warning — though some industries (retail, restaurants, airlines) routinely operate under 1.0 because their inventory and receivables turn over weekly while their payables stretch longer.
The Quick Ratio is stricter: (Cash + Marketable Securities + Receivables) / Current Liabilities. It strips out inventory, which can be hard to liquidate at book value in a stress event.