Current Ratio

Current ratio measures the ability of a company to meet its short term liabilities. It is caculated as Current Assets/Current Liabilities, where current assets consists of cash, marketable securities, accounts receivable, and inventories. Current ratio is a less stringent measure of the liquidity of a company than quick ratio, which excluded inventories from the equation. The higher the current ratio, the better the liquidity of a company. In Katelynn's Report, higher current ratio represents better performance (i.e. higher quantile ranking).

Generally current ratio higher than 1 is a more preferred financial condition, irrespective of the sector or industry of a business. There is no significant differences in the distribution of current ratio in different sectors and industries. At whole market level, 82% (as of 2017-01-27) companies have current ratio higher than 1 (see figure below). Current ratio makes several assumptions that can not always be met for some companies. 1) inventories can be turned into cash or cash equivalent before debt due. 2) accounts receivable are readily available for collection. 3) no working capital is needed to maintain operations.