What is Current Ratio?
A liquidity metric calculated as current assets divided by current liabilities, measuring a borrower's ability to pay short-term obligations with short-term assets.
Formula
Current Ratio = Current Assets ÷ Current Liabilities
Typical range
Above 1.0 indicates more current assets than liabilities; acceptable thresholds vary by industry
Current Ratio in commercial lending practice
Current ratio is a basic liquidity check applied during financial spreading. A ratio above 1.0 indicates the business has more current assets than current liabilities, but acceptable thresholds vary widely by industry — distributors and retailers run lower current ratios than manufacturers. The metric is most useful when compared to industry peers and tracked over time for trend analysis.
Related terms
Related concepts in commercial underwriting
Quick Ratio
A stricter liquidity measure than the current ratio, calculated as cash, marketable securities, and accounts receivable divided by current liabilities.
Read definitionWorking Capital
The difference between current assets and current liabilities, representing the short-term liquidity available to fund day-to-day operations.
Read definitionFinancial Spreading
The process of extracting financial data from tax returns, financial statements, and other documents and organizing it into a standardized format for credit analysis.
Read definitionSee it in Aloan
How Current Ratio shows up in AI underwriting
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