Current Ratio: Formula, What Is a Good One, and Where 526 Big Companies Really Sit

Michael Whitman · Trading since 2017, full-time since 2020 · YouTube creator, 137K subscribers · Published 2026-09-14 · Updated 2026-11-02 · Reviewed 2026-11-01

The current ratio is current assets divided by current liabilities: it compares what a company expects to turn into cash within a year with what it has to pay within a year. Across 526 large non-financial companies filing with the SEC at year-end 2025 the median was 1.18, and only 24.90% of them sat inside the 1.5 to 3.0 range often called healthy.

The arithmetic takes one line. The judgment is where people go wrong, so most of this page is about reading the number against real companies rather than a rule of thumb.

How it works

Current ratio = total current assets ÷ total current liabilities, both read from the same balance sheet. Public companies print both totals in every 10-K and 10-Q; they do not print the ratio.

Current assets are cash and anything expected to become cash within a year: receivables, inventory, short-term investments, prepaid costs.

Current liabilities are what falls due within a year: supplier bills, wages and taxes owed, short-term borrowing and the slice of long-term debt due in the next twelve months.

Above 1.0, the short-term assets are larger than the short-term bills; below 1.0, they are smaller. Working capital is the same comparison as a dollar difference instead of a ratio, which is the more useful form when you want to know how big the cushion is rather than how big it is relative to the bills.

A worked example: Home Depot

Home Depot’s 10-K balance sheet dated 1 February 2026 shows $34,391 million of current assets and $32,424 million of current liabilities.

Current ratio: $34,391 million ÷ $32,424 million = 1.06. Working capital is $34,391 million − $32,424 million = $1,967 million.

Now look at what the current assets are. $25,817 million of them, 75.07%, is inventory: goods on shelves and in distribution centers. Take it out and $8,574 million is left, so the ratio without inventory is $8,574 million ÷ $32,424 million = 0.26.

What that means in plain terms: to cover a year of short-term bills from current assets alone, Home Depot has to turn $23,850 million of its stock into cash, 92.38% of everything on hand. For a retailer whose stock keeps moving that can be routine; for a company with slow-moving stock the same 1.06 would describe a much weaker position.

What is a good current ratio?

Guides commonly put a healthy current ratio somewhere between 1.5 and 3.0, or 1.0 and 2.0. Measured against 526 large non-financial SEC filers at the end of 2025, those ranges describe a minority:

The middle half of these companies ran between 0.89 and 1.65. Plenty of businesses with dependable cash coming in run low on purpose, and the industry decides much of the level:

So “good” means good for that business. Duke Energy at 0.55 and NextEra Energy at 0.60 are regulated utilities, which typically have steady revenue and regular access to borrowing. Walmart at 0.79 and Kroger at 0.80 are big grocery sellers, which typically collect from shoppers at the register and pay suppliers later. Nvidia at 3.91 reported $125,605 million of current assets against $32,163 million of current liabilities. Compare a company with its own industry and its own history, not with a single textbook number.

Current ratio vs quick ratio vs cash ratio

The quick ratio drops inventory and prepaid items and asks the same question of assets that convert to cash more reliably. The cash ratio keeps only cash and cash equivalents, the harshest version.

The gap between them tells you how much of the headline depends on selling stock. Of the 526 companies, 369 reported inventory for the same date. Inventory was a median 25.49% of their current assets, and taking it out moved their median ratio from 1.28 to 0.92. 103 of the 369 (27.91%) were at 1.0 or above with inventory and below 1.0 without it. Apple, where inventory is 3.72% of current assets, barely moves (0.97 to 0.94); Lowe’s, at 82.56%, falls from 1.08 to 0.19.

Reading the trend

One balance sheet is a snapshot; a run of them shows direction. Home Depot’s 10-K filings since 2009 show the ratio at 1.20 in February 2009, a high of 1.55 in January 2012, a low of 1.01 in January 2022, back to 1.41 a year later and 1.06 in February 2026. Home Depot met its obligations through all of it, so for this business a ratio near 1.0 was a normal operating level rather than a warning on its own.

Lowe’s has run thinner for longer. It was below 1.0 once in the filings since 2010 (0.98 in February 2019) and has stayed between 1.00 and 1.40 (rounded) otherwise. A falling trend is a reason to open the notes and the cash flow statement and find out which line moved.

The original data

Every company that tagged current assets, current liabilities and total assets for a balance sheet at calendar year-end 2025, read through the SEC’s XBRL frames on 1 November 2026. 594 had total assets of $10 billion or more; leaving out the 32 in finance, insurance and real estate, where liquidity is judged differently, left 562 filers. Those are not 562 companies: when a parent and its subsidiaries file one combined 10-K, the SEC data repeats the parent’s consolidated balance sheet under each of them (Duke Energy Progress shows Duke Energy’s figures, Florida Power & Light shows NextEra’s). Counting each balance sheet once, by matching date, current assets and current liabilities and keeping the parent, removed 36 rows in 30 groups, mostly utilities, and left 526 companies. 44 of the 526 are based outside the US but file with the SEC, so the sample is large SEC filers rather than US companies only. Most balance sheets are dated December 2025; retailers and others with a January or February year-end appear at that date.

The median was 1.18. 179 companies (34.03%) were below 1.0, 89 (16.92%) were at 2.0 or more and 33 (6.27%) were above 3.0. The largest group, 183 companies or 34.79%, sat between 1.0 and 1.5, with 157 (29.85%) just under it, between 0.5 and 1.0. Only 22 (4.18%) were under 0.5; above 1.5, 75 (14.26%) ran from 1.5 to 2.0 and 56 (10.65%) from 2.0 to 3.0.

Checked against Nasdaq’s balance sheets. Nasdaq’s annual tables for Home Depot (four years), Lowe’s (four years) and Walmart (its year to 31 January 2026) give current assets and current liabilities equal to the SEC figures in all nine cases, to the thousand dollars Nasdaq reports in. Every company in the sample is in the current ratio table, the rows removed are in the co-registrant list, and the trend is in the Home Depot and Lowe’s file.

The trend uses each year-end as first reported in XBRL. Home Depot and Lowe’s company facts go back to the fiscal year ended in early 2009 (Lowe’s to early 2010); those first points come from the comparison column of the following year’s 10-K, the first one filed in XBRL; Home Depot’s inventory tag starts with the year ended January 2012, so the line without inventory starts there. The Lowe’s figures quoted earlier come from the same filings. One year in each was later restated in a newer 10-K, and the chart keeps the original figure.

When it fails

The classic failure is a comfortable ratio and an empty bank account. The ratio sits above 1.0 because inventory and receivables are large, yet a payment due next week cannot be met: stock is not selling and customers are paying in 90 days instead of 30. Neither problem changes the ratio by a cent, because it counts what assets are called, not when they turn into cash.

The second is reading a high ratio as strength. Cash sitting idle and stock piling up in a warehouse both push the ratio up while earning nothing, and inventory that will not sell raises it most of all.

The third is judging a company against the wrong yardstick. The medians above run from 0.81 to 1.44 by industry; a utility at 0.80 and a manufacturer at 0.80 are in very different places.

The fourth is trusting a single year-end. The company picks its balance-sheet date and can tidy it by collecting hard and paying late, so the reported figure can flatter the typical month. The notes to the accounts show when debts fall due and how much credit is undrawn, which the ratio leaves out entirely.

And the fifth is mistaking a low ratio for insolvency. It signals liquidity risk, a timing question; whether the company is worth more than it owes is a different measure.

Questions people ask

What is a good current ratio?

There is no single good number. Among 526 large non-financial SEC filers at year-end 2025 the median was 1.18 and the middle half ran from 0.89 to 1.65; the industry median ran from 0.81 for utilities, transport and telecoms to 1.44 for manufacturers.

Is a current ratio less than 1 bad?

Not by itself. 179 of the 526 (34.03%) were below 1.0, including Walmart at 0.79 and Apple at 0.97. It matters more when the ratio is falling, the business has slow cash coming in, or credit is hard to get.

What is the difference between the current ratio and the quick ratio?

The quick ratio leaves out inventory and prepaid items. Home Depot’s 1.06 current ratio drops to 0.26 on inventory alone; for the 369 companies that reported inventory, the median went from 1.28 to 0.92.

What does a current ratio of 1.5 mean?

The company has $1.50 of current assets for every $1.00 of current liabilities due within a year. Of the 526 large companies, 131 (24.90%) were between 1.5 and 3.0.

Related

Cash-flow-to-debt ratio measures the same safety from cash actually generated rather than balances. Debt ratio asks the longer-term question of how much of the whole balance sheet is owed. And the cash flow statement shows the money moving in and out, which is what the current ratio can only guess at.

This page is educational, not financial advice. Test every idea on your own charts before risking money.