Current Ratio formula
\[ \dfrac{\text{Current assets}}{\text{Current liabilities}} \]
Terms
- Current assets, closing balance: Assets expected to turn into cash within a year: cash, short-term investments, receivables, inventory, prepayments.
- Current liabilities, closing balance: Obligations due within a year: trade payables, short-term borrowings, tax and payroll liabilities, accruals.
Result
Current Ratio is a ratio. Best within a range: both too low and too high are warning signs.
Target
Rule of thumb: between 1 and 2.
Below 1, the company depends on new financing or faster collection to pay its short-term bills. Well above 2 can mean cash and inventory are tied up instead of working. Both bounds are rules of thumb: retailers with fast inventory turns run safely below 1, project businesses often need more.
Current Ratio pitfalls
- In the Business Central standard category setup, short-term investments (17xxx) and several current receivables sit under the top-level Assets category, not Current Assets. A measure built on the category path misses them and understates the ratio.
- Liabilities are stored as credits. Read them with a flipped sign, or the ratio comes out negative.
- A year-end figure can be dressed up: paying suppliers just before the close lowers both sides and raises the ratio. Look at the monthly trend, not a single date.
Current Ratio in Business Central
Current assets (closing balance)
- Category Current Assets (2) and every category below it
- Plus 10 accounts assigned directly: 15910 Current Receivable from Employees, 15920 Accrued income not yet invoiced, 15930 Clearing Accounts for Taxes and charges, 15940 Tax Assets, 15950 Current Receivables from group companies, 17100 Bonds, 17120 Decreases during the Year, 17200 Convertible debt instruments, 17300 Other short-term Investments, 17400 Write-down of Short-term investments
38 posting accounts in total.
The full account list is on the Current assets page.
Current liabilities (closing balance)
- Category Current Liabilities (11) and every category below it
- Category Payroll Liabilities (12) and every category below it
- Plus 8 accounts assigned directly: 23850 Employees Payable, 26100 Accrued wages/salaries, 26200 Accrued Holiday pay, 26300 Accrued Pension costs, 26400 Accrued Interest Expense, 26500 Deferred Income, 26600 Accrued Contractual costs, 26700 Other Accrued Expenses and Deferred Income
29 posting accounts in total.
The full account list is on the Current liabilities page.
Add Current Ratio to a Power BI report
I build Power BI finance reports on Business Central data, with Current Ratio, its trend and, where it helps, a forecast with a likely range. See it on your data