What is Current Ratio?
The current ratio is a liquidity ratio measuring a company’s ability to pay short-term obligations with its current assets. It equals current assets divided by current liabilities.
How It Works
- Sum cash, receivables, inventory, and other current assets.
- Divide by current liabilities.
- A ratio of 1.5 to 2.0 is generally considered healthy in most sectors.
Saudi Context
Saudi banks under SAMA expect a current ratio above 1.2 for typical SME credit approval and apply tighter thresholds for cyclical sectors.
Example
A Saudi company with SAR 10 million current assets and SAR 6 million current liabilities has a current ratio of 1.67.