Examples of Companies With High and Low Current Ratios

Introduction

You're comparing balance sheets and want clear examples of firms with high and low current ratios and why it defintely matters: the current ratio is current assets divided by current liabilities (current assets ÷ current liabilities), a basic liquidity measure that tells you whether a company can cover short-term bills; as a rule of thumb for FY2025 analysis many analysts treat >2.0 as a high (conservative) buffer, 1.0-2.0 as adequate, and <1.0 as low (potential stress or high efficiency), and here's the one-liner you can use every time: current ratio shows short-term cushion; higher is more conservative, lower may mean efficiency or stress - quick math: $400m ÷ $200m = 2.0; what this hides: industry norms and cash-flow timing still drive the real story.

Key Takeaways

• Current ratio = current assets ÷ current liabilities; quick one-liner: shows short-term cushion - higher = conservative, lower = efficiency or stress.
• High ratios (>2.0 by many analysts) commonly come from cash-rich tech/pharma firms (e.g., Microsoft, Oracle) and indicate liquidity buffers or slow short-term liabilities.
• Low ratios (<1.0 or near 1.0) are common in retailers, grocers, airlines and auto makers (e.g., Walmart, Target) and can signal efficient working capital or potential stress if cash flow weakens.
• Always benchmark within industry (3-5 peers) and check complementary metrics: quick ratio, days sales outstanding, inventory turns, and operating cash flow.
• For FY2025 filings, dig into cash, receivables, inventory and one-offs - a high ratio from non-liquid inventory is different from one driven by cash.

Companies commonly showing high current ratios

Consumer tech and cash-rich software firms often show higher ratios

You're screening for companies that carry a short-term cushion so you can tell which ones can fund operations, buybacks, or weather shocks without emergency financing.

Why they show high current ratios: these firms hold large cash and short-term investments, collect receivables from subscription sales, and typically carry low inventory. That mix lifts current assets relative to current liabilities.

Practical steps to evaluate one of these firms

• Pull the FY2025 balance sheet: current assets and current liabilities.
• Compute current ratio = current assets ÷ current liabilities.
• Check cash & short-term investments line and accounts receivable detail.
• Adjust for short-term marketable securities that are actually liquid.
• Scan notes for one-off timing items (large tax payments, restructuring).

Best practices and considerations

• Benchmark within software peers; expect higher cash shares than retail.
• Prefer cash-driven high ratios over inventory-driven ones.
• Pair with quick ratio (excludes inventory) to confirm true liquidity.
• Watch deferred revenue: high deferred revenue reduces working-capital pressure.
• Consider capital allocation: high current ratio often supports buybacks/dividends.

Quick one-liner: high ratio often reflects cash-rich balance sheets or slow short-term liabilities.

Examples: Microsoft, Oracle, and cash-rich pharma names - what to check

Look at FY2025 filings for each Company Name and focus on three line items: cash & equivalents, short-term investments, and accounts receivable. Those drive the headline ratio in cash-heavy firms.

Concrete checklist

• Verify cash + ST investments as a percentage of current assets.
• Compute receivables days (DSO) = (AR ÷ revenue) × 365 to gauge collectability.
• Exclude restricted cash or escrowed amounts disclosed in footnotes.
• Flag large intra-period transfers (quarter-end window dressing).

Example reading: if FY2025 shows cash & ST investments = 60% of current assets, the current ratio is likely driven by cash and therefore safer than a ratio driven by slow-moving inventory.

Quick one-liner: high ratio often reflects cash-rich balance sheets or slow short-term liabilities.

How to act when you find a high current ratio

Don't assume safety; translate the ratio into actions you can take as an investor or analyst.

Action steps

• Run the quick ratio = (current assets - inventory) ÷ current liabilities; if it stays > 1.5, liquidity is robust.
• Model cash runway: project operating cash flow for 12 months and compare to short-term maturities.
• Check management commentary in FY2025 MD&A for planned uses of cash (M&A, buybacks).
• If you own the stock, size position by excess liquidity and downside scenarios.

What this estimate hides

• High ratio can hide concentrated receivables or restricted cash.
• One-off timing items (tax or legal settlements) can temporarily inflate liquidity.
• Capital-light business models can justify higher cash balances; capital-intensive ones less so.

Quick one-liner: high ratio often reflects cash-rich balance sheets or slow short-term liabilities.

Companies commonly showing low current ratios

Retailers and grocers: low ratios from fast turns and high payables

You're comparing a retailer before earnings and need to know if a low current ratio is a risk or a business feature. Retailers often run current ratios below 1.0 because inventory turns quickly and suppliers offer long payables, so working capital needs are low relative to sales.

Practical steps

• Pull 2025 balance sheet: current assets and current liabilities from the 10-K.
• Compute current ratio: current assets ÷ current liabilities.
• Compute quick ratio: (cash + receivables + short-term investments) ÷ current liabilities.
• Calculate DIO, DSO, DPO, and cash conversion cycle (CCC): these show whether low ratio comes from fast turns or stretched payables.
• Normalize for seasonality: compare the same quarter vs peers, not sequential quarters.

Best practices and considerations

• Adjust for vendor financing and store-level securitization disclosed in notes.
• Exclude short-term restricted cash pledged for leases or tax payments.
• Watch inventory write-downs - they can mask real liquidity pressure.
• Benchmark against 3-5 direct peers and the retail subsector median.

One-liner: low ratio in retail often equals tight, efficient working capital - until sales drop and the cushioning vanishes.

Examples: big-box retailers, airlines, and auto makers

Walmart and Target are classic big-box examples where operations and supplier terms push headline current ratios lower than in tech or pharma. Airlines and auto manufacturers also show low ratios because of large payables, vendor financing, and capital-intensive cycles that move funding into long-term debt or off-balance arrangements.

Practical steps to analyze these names

• Open the 2025 Form 10-K: record current assets, current liabilities, short-term debt, and short-term lease liabilities.
• Reclassify near-term portions of long-term debt and finance leases to stress-test liquidity.
• Check operating cash flow (2025 cash flow statement) and free cash flow trends for 3 years.
• Scan MD&A for fleet orders, supplier financing programs, and inventory consignment - these affect working capital dynamics.

Best practices and considerations

• For airlines: factor in prepayments (fuel, maintenance) and seasonality in revenue when judging liquidity.
• For autos: include dealer receivables and floorplan financing in working-capital analysis.
• Compare each company to peers on CCC and operating cash flow margin, not just the current ratio.

One-liner: operational models - not always distress - often explain low ratios in retail, airlines, and autos; dig into the footnotes.

Interpreting a low current ratio: efficiency versus warning

If you see a low current ratio, decide fast whether it's efficient or dangerous. Start by asking: is operating cash flow solid, are payables unusually long, and are inventories turning quickly? If OCF is weakening while the ratio falls, that's a red flag.

Practical diagnostic steps

• Trend the current ratio and operating cash flow for the last 4 quarters and fiscal 2023-2025.
• Run a stress case: assume sales -10% → apply gross margin and fix/variable cost splits to estimate monthly cash burn.
• Estimate runway: cash and short-term investments ÷ monthly cash burn.
• Check debt covenants and upcoming maturities within 12 months.

Concrete actions if ratio and cash flow diverge

• Negotiate extended payables or vendor captures.
• Delay nonessential capex and tighten inventory buys.
• Tap committed revolver or pre-negotiate covenant waivers.
• Prepare investor messaging explaining working-capital mechanics.

What this estimate hides: some low ratios are propped by one-offs - tax payments, seasonal accruals, or a large short-term borrowings that will convert to long-term debt after the report. Always read the notes; they reveal classification changes and one-time items.

One-liner: low ratio can be efficient working capital or a warning sign - check cash flow and footnotes before you act, defintely.

Action: Finance: build a 13-week cash model and a CCC sensitivity for the target name using 2025 line items by Friday.

Comparing current ratios: industry and context

You're lining up current ratios to decide which companies have real short-term cushion and which are just paper safe; compare only within industry and use complementary metrics so the ratio actually tells you what to do. Bottom line: benchmark against 3-5 peers, check quick ratio, DSO, and operating cash flow, and flag divergence between ratio and cash flow.

Always compare within industry and against 3-5 peers

Start by picking a peer set: same industry, similar revenue scale (within ±50%), and similar business model (product vs subscription). Exclude banks and other financial institutions because their balance sheets are regulated and not comparable.

Practical steps:

• Pull each company's 2025 annual report (10‑K) and extract current assets and current liabilities.
• Calculate current ratio = current assets ÷ current liabilities for target and each peer.
• Make a peer table with median, 25th, and 75th percentiles; mark where your target sits.

Best practice: use 3-5 peers so percentiles are meaningful; if your target sits below the 25th percentile, treat that as a prompt for deeper review. One-liner: bench against peers, not the market.

Watch complementary metrics: quick ratio, days sales outstanding, and operating cash flow

Don't trust current ratio alone; inventory and timing distort it. The quick ratio (current assets minus inventory, divided by current liabilities) strips inventory out to show truly liquid coverage.

Key formulas and checks:

• Quick ratio = (current assets - inventory) ÷ current liabilities. If quick <1, liquidity is thin after excluding inventory.
• Days sales outstanding (DSO) = (accounts receivable ÷ revenue) × 365. Example math: AR $200m, revenue $1.2b → DSO ≈ 61 days.
• Operating cash flow (OCF): compare OCF to current liabilities (OCF ÷ current liabilities) and to net income. A falling OCF with stable current ratio can hide stress.

Actionable checks: if DSO is > industry median by >10 days, or if quick ratio <1 while current ratio >1.5, dig into inventory quality and receivable collectability. One-liner: quick metrics show whether the cushion is real or just slow-moving stock.

The right benchmark turns a ratio from a number into an actionable signal

Context matters: subscription software will naturally show higher cash and receivables; retailers run lower ratios because inventory turns fast and supplier credit inflates payables. So translate the ratio into a hypothesis about the business.

Concrete steps to convert number into action:

• Build a 12‑month rolling view of current ratio, quick ratio, DSO, and OCF from 2025 filings to spot trends.
• Flag combinations: current ratio decline > 20% year‑over‑year with OCF decline > 20% → immediate investigation.
• Check short-term debt schedule: a high current ratio that masks upcoming maturities is not safe.
• Review line-item detail: split cash, short-term investments, trade receivables, finished goods vs raw materials.

What this estimate hides: a single large tax payment or one-off receivable reversal can swing the ratio-so read the footnotes and cash‑flow statement before deciding.

One-liner: the right benchmark turns a ratio from a number into an actionable signal.

Next step: you-collect 2025 balance-sheet line items for the target and 3 peers, compute the four metrics (current, quick, DSO, OCF coverage) in a table, and send the deck to Finance by Tuesday; Finance: prepare the peer table and flag anomalies.

Quick math and what to watch in 2025 filings

Quick math: how to read the current ratio fast

You want the simple formula first: current ratio = current assets ÷ current liabilities. Use it as an initial liquidity screen, not a verdict.

Steps to calculate and flag fast:

• Pull the balance sheet as of the 2025 fiscal year-end.
• Note current assets and current liabilities line totals.
• Compute ratio and compare to the sector median and three peers.

Rules of thumb: a ratio above 1.5 usually looks conservative; below 1.0 can be risky depending on sector.

Here's the quick math with an illustrative example: current assets $50,000, current liabilities $30,000 → current ratio = 1.67. What this hides: if $40,000 of those assets is inventory, effective liquid cushion is much smaller - so dig deeper. (This example is illustrative, not a real-company filing.)

One-liner: current ratio shows short-term cushion; higher is more conservative, lower may mean efficiency or stress.

Read 2025 fiscal statements for cash, receivables, inventory, and one-offs

Open the 2025 10-K (or annual report) and follow these practical steps:

• Check the balance-sheet date used and any subsequent events notes.
• Extract line items: cash and cash equivalents, short-term investments, trade receivables (net), inventory (by type), and current payables/short-term debt.
• Read notes on receivables aging, inventory valuation method (FIFO/LIFO/weighted), and allowance for doubtful accounts.
• Scan the cash-flow statement for operating cash flow, and the notes for large timing items (tax payments, pension contributions, restructuring charges).

Red flags to watch in 2025 filings:

• Receivables >90 days and rising - collections risk.
• Inventory days increasing by >20% year-over-year - potential obsolescence.
• One-off current liabilities (large tax or restructuring accruals) that spike current liabilities at year-end.
• Relying on short-term borrowings to fund working capital-check maturity schedule in notes.

Actionable next steps when you see a red flag: ask for the latest interim cash-flow update; re-run ratio excluding clearly non-liquid items; stress-test with a 30-60 day sales decline. If onboarding takes long, recievables can turn illiquid quickly - that raises real risk.

One-liner: dig into line items - a high ratio driven by non-liquid inventory is different from one driven by cash.

Practical adjustments and what to report

Don't stop at the headline ratio. Recast it to reflect true liquid resources and disclose your adjustments.

• Compute a quick ratio = (cash + short-term investments + receivables) ÷ current liabilities.
• Compute an adjusted current ratio excluding slow-moving inventory: (current assets - slow inventory) ÷ current liabilities.
• Calculate inventory days and receivable days from 2025 numbers: inventory ÷ COGS × 365 and receivables ÷ revenue × 365.

Example adjustment (illustrative): 2025 current assets $120,000, slow inventory identified $60,000, current liabilities $80,000. Headline ratio = 1.5. Adjusted ratio = (120,000 - 60,000) ÷ 80,000 = 0.75 - that changes your call from safe to watchlist.

Reporting checklist for your model or memo:

• Show headline and adjusted ratios side-by-side.
• Flag one-off current liabilities and quantify their impact.
• Include operating cash flow trends for the last 12 months and the last fiscal year.
• Benchmark against 3 peers and the sector median.

One-liner: the right benchmark turns a ratio from a number into an actionable signal.

Finance: draft 13-week cash view by Friday

Examples of Companies With High and Low Current Ratios

Microsoft-style case: cash-rich tech with high current ratio

You want a clear template for a cash-rich tech firm so you can spot when a high current ratio is healthy vs just bookkeeping. Quick takeaway: a current ratio well above peers usually reflects large cash and short-term investments, low near-term debt, and flexibility to buy back stock or raise R&D spend.

Example (illustrative FY2025-style snapshot): current assets $220 billion, cash & short-term investments $140 billion, current liabilities $80 billion → current ratio = 2.75. Here's the quick math: $220B ÷ $80B = 2.75.

Concrete checks and steps

• Verify cash quality - confirm how much is unrestricted vs held overseas.
• Reclassify short-term investments - treat highly liquid T-bills like cash.
• Subtract deferred revenue that will convert to costs in 12 months.
• Compare to 3-5 peers in cloud/software; expect peer range ~1.8-2.5.
• Watch buyback plans - high cash + high buybacks can reduce cushion fast.

Best practices

• Compute quick ratio (excludes inventory) to confirm true liquidity.
• Check operating cash flow 12-month trailing - ideally positive and growing.
• Stress-test: model scenarios where capital returns continue at current pace for 12 months.

One-liner: high ratio usually signals a cash buffer that funds buybacks/dividends, not just bloated assets.

Retailer-style case: low current ratio with efficient working capital

You need to know when a low ratio is a deliberate, efficient model versus a red flag. Quick takeaway: many retailers run low current ratios because inventory turns fast and payables finance operations - that's efficient until sales slip.

Example (illustrative FY2025-style snapshot): current assets $8.0 billion (cash $1.0B, receivables $1.2B, inventory $4.8B), current liabilities $10.0 billion → current ratio = 0.80.

Concrete checks and steps

• Calculate quick ratio: ($1.0B + $1.2B) ÷ $10.0B = 0.22. That shows inventory dependence.
• Measure inventory turns: cost of goods sold ÷ average inventory. High turns (8-12x) justify lower ratio.
• Compute cash conversion cycle: DSO + DIO - DPO. If cycle < 10 days, low ratio often OK.
• Watch vendor terms - shrinking DPO (days payable outstanding) can raise short-term stress.

Warning signals

• Falling same-store sales with rising inventory → risk of markdowns and liquidity squeeze.
• Operating cash flow turns negative while current ratio stays low → immediate red flag.
• Large short-term maturities or tax/reserve bills due within 12 months.

One-liner: low ratio can be a sign of efficient working capital - until sales falter and cash flow reverses.

Compare balance-sheet detail, not just the headline ratio

You need a checklist to turn a ratio into an action. Quick takeaway: the headline current ratio is a screen - dig into cash quality, receivables collectability, inventory liquidity, and one-off current items.

Step-by-step checklist (apply to any FY2025 filing)

• Recompute: current ratio = current assets ÷ current liabilities. Put the result in your model with two decimal places.
• Calculate quick ratio: (cash + short-term securities + receivables) ÷ current liabilities.
• Flag non-operating current items: tax payables, restructuring reserves, customer deposits.
• Assess receivables: aging >90 days as percent of total receivables; >10% needs investigation.
• Assess inventory: slow-moving inventory >12 months as percent of inventory; >15% is concerning.
• Compare to peers (3-5) and industry median - record differences in a table.

Practical modeling tips

• Run a 12‑month cash-stress case: remove discretionary buybacks, assume 20% revenue decline, and track covenant breaches.
• Use rolling 13‑week cash forecast for short-term liquidity planning.
• Annotate balance-sheet notes: unliquidated bank lines, pledged assets, and off-balance leases.

What this estimate hides: a high ratio driven by slow inventory buildup is different from one driven by cash; a low ratio funded by supplier credit is different from one funded by rising short-term debt.

One-liner: compare balance-sheet detail, not just the headline ratio - that's how you make the number actionable.

Action: Finance - draft a peer-benchmarked current/quick ratio table and a 13-week cash view by Friday.

Liquidity checklist for screening current ratios

Use current ratio as a starting screen

You want a quick, reliable flag - not a decision. The headline take: treat the current ratio as a screening tool, then follow up with more precise metrics.

Here's the quick math: current ratio = current assets ÷ current liabilities. As a rule of thumb, a ratio above 1.5 is conservative, below 1.0 is a potential red flag (sector dependent). What this estimate hides: a high current ratio can be driven by slow-moving inventory or receivables, not cash.

Step-by-step:

• Compute current ratio from the latest fiscal 2025 balance sheet
• Compute quick ratio (exclude inventory)
• Compare operating cash flow (OCF) for trailing 12 months
• Flag when current ratio > 1.5 but quick ratio 1.0

One-liner: current ratio starts the conversation; quick ratio and OCF finish it.

Action: benchmark each target against peers and review 2025 line items

Lead takeaway: always benchmark against 3 to 5 industry peers and inspect the underlying 2025 line items - that's where decisions come from.

Concrete steps to run now:

• Pick 3 peers with similar business models and fiscal year ends
• Pull fiscal 2025 10-K/annual report line items: cash & short-term investments, receivables, inventory, prepaid expenses, current maturities of debt, deferred revenue, tax/payables, restructuring accruals
• Normalize accounting differences (LIFO vs FIFO, receivable factoring, lease current obligations)
• Compute peer medians and percentile rank for current ratio, quick ratio, and OCF-to-current-liabilities

Flag rules (practical):

• Flag if current ratio 1.0 and trailing 12‑month OCF is negative
• Flag if target's ratio deviates > 20% from peer median without a clear reason
• Flag if receivables > 30% of current assets or inventory > 50% of current assets while quick ratio 1.0

One-liner: benchmark and line-item review turn a number into a reason to act.

Check quick ratio, cash flow, then take concrete actions

Direct takeaway: after the screen and peer check, use quick ratio and cash-flow stress tests to choose actions - conserve cash, renegotiate payables, or do nothing.

Practical sequence:

• Calculate quick ratio = (cash + ST investments + receivables) ÷ current liabilities
• Measure OCF/ current liabilities and OCF margin for trailing 2025
• Run a 13-week cash-flow forecast under three scenarios: base, -10% sales, -25% sales
• If 13-week runway < 12 weeks, escalate to treasury and CFO

Example actions tied to flags:

• If current ratio 1.0 and negative OCF - conserve discretionary spend and negotiate supplier terms
• If high current ratio but low quick ratio - sell or write down slow inventory, tighten collections
• If peer median shows better liquidity - consider short-term financing or delaying buybacks

One-liner: current ratio tells you liquidity posture; context tells whether to act.

Next step and owner: Finance - draft a 13-week cash view using fiscal 2025 balances and scenario inputs by Friday.