current ratio
mediumformal, technical
Definition
Meaning
A liquidity ratio calculated as current assets divided by current liabilities, used to measure a company's ability to pay short-term obligations.
In broader contexts, it can metaphorically refer to any measure of immediate capability or balance between resources and demands, though primarily a financial term.
Linguistics
Semantic Notes
Specific to accounting and finance; often compared with the quick ratio (acid-test ratio) which excludes inventory.
Dialectal Variation
British vs American Usage
Differences
No significant differences in meaning or usage; minor pronunciation variations in 'current' and 'ratio'.
Connotations
Neutral and technical in both varieties.
Frequency
Equally common in UK and US business and academic contexts.
Vocabulary
Collocations
Grammar
Valency Patterns
NP has a current ratio of NUMThe current ratio is ADJTo compute the current ratio, VPVocabulary
Synonyms
Strong
Neutral
Weak
Vocabulary
Antonyms
Usage
Context Usage
Business
Used in financial statements and analysis to assess short-term liquidity and creditworthiness.
Academic
Discussed in finance, accounting, and economics courses and research papers.
Everyday
Rarely used; may appear in personal investing or news about company performance.
Technical
Precisely defined as current assets divided by current liabilities, with standard thresholds (e.g., 2:1 considered healthy).
Examples
By CEFR Level
- The current ratio is important for businesses.
- A good current ratio helps companies pay bills.
- A high current ratio means the company can pay its short-term debts.
- Investors look at the current ratio to check liquidity.
- Analysts use the current ratio to assess liquidity risk in financial reports.
- The company's current ratio improved after reducing inventory.
- Despite a favorable current ratio, the firm faced cash flow issues due to slow receivables.
- A current ratio below 1.0 may signal impending liquidity crises.
Learning
Memory Aids
Mnemonic
Think 'current' as in 'now' – it compares what you have now (assets) to what you owe now (liabilities).
Conceptual Metaphor
Health metaphor: a high current ratio indicates financial health, like a strong immune system.
Watch out
Common Pitfalls
Translation Traps (for Russian speakers)
- Avoid translating 'current' as 'актуальный' (relevant); use 'текущий' for financial context, as in 'коэффициент текущей ликвидности'.
Common Mistakes
- Mispronouncing 'ratio' as /ˈræʃ.ioʊ/
- Confusing with 'quick ratio' or 'current rate'.
Practice
Quiz
What does the current ratio primarily measure?
FAQ
Frequently Asked Questions
A current ratio between 1.5 and 3.0 is often considered healthy, but it varies by industry.
It is calculated by dividing current assets by current liabilities.
The quick ratio excludes inventory from current assets, providing a stricter measure of liquidity.
Yes, a very high current ratio may indicate inefficient use of assets or excess idle cash.