Accounting ratio
Current ratio
Whether a business has enough short-term assets to cover its short-term debts.
What the exam boards say
- Cambridge 0452 and 0985, 2027 to 2029: listed. Formula as printed: Current assets / Current liabilities; answer presented as a ratio.
- Cambridge, 2026 syllabus: listed. Formula as printed: Current assets / Current liabilities.
- Pearson Edexcel 4AC1: named as "current (working capital) ratio"; the specification prints no formula.
- OxfordAQA 9215: named as "current ratio"; the formula is in OxfordAQA's separate guide, Formulae for accounting ratios.
Cambridge states that for 2027 to 2029 the printed formulas are the only ones accepted in candidate responses, so use the wording above for a Cambridge paper.
Sources: Cambridge IGCSE Accounting 0452: syllabus for 2027-2029 (Version 1), pages 18, 21; Cambridge IGCSE Accounting 0452: syllabus for examination in 2026 (Version 2, December 2025), page 19; Pearson Edexcel International GCSE in Accounting (4AC1) specification (FT Sept 2017) (Issue 1, October 2016), page 21; OxfordAQA International GCSE Accounting (9215) specification (FT Sept 2024) (Version 1.2), page 18. See all sources.
Worked example
Current assets RM30,000 ÷ current liabilities RM15,000 = 2:1.
How to interpret it
Around 1.5:1 to 2:1 is often considered comfortable, but it varies by business. Too low risks not paying bills; very high may mean idle resources.
Using it in analysis
The current ratio is the first test of whether a business can pay its short-term debts when they fall due. It measures liquidity, not profit. Compare it over several years and with a similar business.
A rising ratio suggests better liquidity. A falling ratio warns that short-term debts are catching up with short-term assets, which can lead to trouble paying suppliers or the bank. A ratio above 1:1 means current assets exceed current liabilities, but the comfortable level varies by trade.
Example: current assets of RM180,000 and current liabilities of RM90,000 give 180,000 ÷ 90,000 = 2, written 2:1. A later year has current assets of RM150,000 and current liabilities of RM125,000, a ratio of 1.2:1. The cushion has thinned. Cash may have been spent, receivables collected and not replaced, or more short-term borrowing taken on. The analyst would look at how day-to-day operations are being funded.
Common mistakes: assuming a higher ratio is always better. A very high figure can mean idle cash, slow-moving inventory or overdue receivables, none of which earn a return. The ratio also treats all current assets as equal, but inventory is harder to turn into cash than a bank balance. It is a snapshot at the year end, and it does not show when debts fall due.
Read it with the acid-test ratio, which removes inventory. If the current ratio looks healthy but the acid-test ratio is weak, the business relies on stock it may not sell quickly. A retailer with a lot of inventory normally has a higher current ratio than a service firm, so compare like with like.
Limitations
It treats all current assets as equally liquid, which inventory is not, hence the acid-test ratio.
Related ratios
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