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Definition · liquidity

Current ratio

Current ratio compares current assets with current liabilities to assess whether a company can meet short-term obligations. For current ratio, the useful boundary is the source cash view, timing horizon, owner, liquidity exposure, and operating decision before payment timing, runway, or financing options change.

Also known as working capital ratio

Written by Pluvo TeamReviewed by Pluvo Team
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Why it matters

Understanding current ratio matters because cash decisions are time-sensitive. Teams need to know when money moves, which balance changes, who owns the next action, and what can still be changed before liquidity tightens. Pluvo computes the current ratio from live balance-sheet data and explains a shift by the current assets and liabilities that moved.

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In practice

  • Liquidity example

    Finance teams use current ratio when they need to understand cash timing before a decision is made. A team might compare expected receipts, payroll, vendor payments, and debt obligations to decide what action is needed this week.

  • Pluvo example

    Pluvo computes the current ratio from live balance-sheet data and explains a shift by the current assets and liabilities that moved.

In practice, teams should define current ratio with a clear source, owner, time period, and decision before they use it in reporting, planning, or operating reviews.

Understanding current ratio matters because cash decisions are time-sensitive. Teams need to know when money moves, which balance changes, who owns the next action, and what can still be changed before liquidity tightens. Pluvo computes the current ratio from live balance-sheet data and explains a shift by the current assets and liabilities that moved.

A strong workflow for current ratio separates the definition from the action: first agree what the term means, then decide how it is measured, when it changes, and who is accountable for the next step.

Pluvo computes the current ratio from live balance-sheet data and explains a shift by the current assets and liabilities that moved.

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FAQ

What is the current ratio?

Current ratio compares current assets with current liabilities to assess whether a company can meet short-term obligations. For current ratio, the useful boundary is the source cash view, timing horizon, owner, liquidity exposure, and operating decision before payment timing, runway, or financing options change.

How do you calculate the current ratio?

To calculate current ratio, define the source data, time period, comparison basis, and owner before applying the formula. The useful answer is not only the math; it is whether the inputs and timing match the decision the metric supports.

What is a good current ratio?

A good value for current ratio depends on company stage, business model, margin profile, cash position, and reporting purpose. The useful comparison is the one tied to the decision, not a generic benchmark copied across contexts.

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Sources

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