Current ratio floor
What it measures¶
The current ratio divides current assets — cash and what turns into cash within a year, such as money customers owe and goods in stock — by current liabilities — what the company must pay within a year. A ratio of 1.0 means the short-term assets exactly match the short-term bills. This check asks: is the ratio at least 1.0?
Why it is on the page¶
It is the oldest test of short-term solvency. Below 1.0, the company would need cash from somewhere else — new borrowing, the year's operations, or a sale of long-term assets — to pay what falls due within the year if all of it came due at once. Rating agencies judge liquidity on fixed lines rather than against the industry, so the line is the same for every company.
Thresholds, their source and the population they were fitted on¶
| Result | When |
|---|---|
| ✓ passed | current assets ÷ current liabilities is 1.0 or more |
| ✕ failed | it is below 1.0 |
| ○ not evaluable | current assets or current liabilities is not stored |
For an industrial company, the bar also draws a labelled line at 2.0: Benjamin Graham's stricter test for a "defensive" investor's holdings. It is a reference only and does not decide the check.
- Source: Benjamin Graham, The Intelligent Investor, chapter 14 (the 2.0 line); the 1.0 floor is the common accounting reading of the ratio.
- Fitted on: no statistical sample — a rule of thumb from Graham's experience of industrial companies.
- Evidence grade: folklore.
- Basis: absolute.
A worked example¶
Honeywell International, fiscal year 2025 (statements stored on 25 October 2026): current assets were 1.30 times current liabilities — passed.
Apple, the same year: 0.89 times — 147,957 million US dollars of current assets against 165,631 million of current liabilities — failed. A company with very steady cash coming in can run below 1.0 by choice; the check still reports the figure against the line.
What “No verdict” means here¶
The check is not evaluable when the balance sheet does not split assets and liabilities into current and long-term items, which is the norm for banks and insurers (not scored by the summary) and happens for some data providers. The missing input is named and the check leaves the area's count.
What the verdict is and is not¶
A pass says short-term assets covered short-term bills at the last year-end. It does not say how quickly the stock or the money owed by customers will turn into cash — the quick ratio and the cash ratio take those away. It is not a forecast and not an instruction to trade the shares.