What current ratio indicates?
To a creditor, the higher the ratio the better. To the firm, a high current ratio indicates liquidity, but it also may indicate and inefficient use of cash and other short-term assets. Absent some extraordinary circumstances, we would expect to see a current ratio of at least 1, because a ratio of less than 1 would imply a negative working capital number, which which over time could mean insolvency. Generally, a number closer to the 2 range would be most desirable for most industries.
