Liquidity ratios measure whether a business can pay its debts within twelve months—but the ideal range is not "as high as possible." A current ratio above 2× suggests inefficient capital allocation, while below 1× signals danger. Drag the slider to adjust current assets and watch both ratios respond in real time.
The current ratio compares all current assets (cash, receivables, inventory, prepayments) to current liabilities due within twelve months. It includes inventory because even though stock takes time to sell, it represents liquid value. The ideal range of 1.5 to 2 times means for every dollar of short-term debt, the business holds $1.50 to $2.00 in liquid assets. Ratios above 2× suggest capital is sitting idle rather than generating returns through reinvestment or expansion. Ratios below 1× mean current liabilities exceed current assets, creating immediate solvency risk where the business may struggle to meet obligations as they fall due.