Definition of the current ratio
The current ratio measures a company's ability to meet its short-term financial obligations (under 12 months) with assets that can likewise be mobilised in the short term.
Current liabilities = trade payables + ST financial debt + accrued expenses + ST provisions
Both components can be read directly from the balance sheet in the annual report:
- Current assets: the "Current assets" section — the total of the lower-left part of the balance sheet.
- Current liabilities: the "Current liabilities" or "Short-term debt" section — the lower-right part of the balance sheet.
Interpretation
| Current Ratio | Interpretation | Screener score |
|---|---|---|
| > 2.0 | Excellent liquidity — very comfortable, large safety margin | 3 / 3 pts |
| 1.5 – 2.0 | Good liquidity — healthy for most sectors | 2 / 3 pts |
| 1.0 – 1.5 | Adequate but limited liquidity — watch the trend | 1 / 3 pts |
| < 1.0 | Current liabilities exceed current assets — risk of a cash crunch | 0 / 3 pts |
A current ratio < 1 is not automatically critical. Large-scale retail can structurally run a current ratio below 1 because it collects from customers in cash and pays suppliers at 60-90 days — its working capital is negative, which is a cash-flow advantage. Always interpret it within the sector's context.
Current ratio and quick ratio calculator
Current ratio vs Quick ratio
The quick ratio (or acid-test ratio) is a more conservative version that excludes inventory from current assets, since inventory is the least liquid of current assets:
| Ratio | Includes inventory | Recommended use |
|---|---|---|
| Current Ratio | Yes | Overall view of liquidity — first filter |
| Quick Ratio | No | Inventory-heavy industries (manufacturing, retail) |
| Cash Ratio | No (cash only) | Extreme stress test — rarely used in practice |
The current ratio on Euronext Growth small caps
Euronext Growth small caps are particularly exposed to liquidity problems because they have more limited access to capital markets than large companies. In a cash crunch, a small cap can struggle to raise funds quickly. Hence the importance of checking the current ratio before investing.
A current ratio deteriorating year after year (1.8 → 1.5 → 1.1 → 0.9) is a strong warning sign, even if the company remains profitable — it can be profitable yet short of cash.
Go further
New to screening European small caps? See the European small-cap stock screener guide and the glossary.