Current Ratio: Can the Company Pay Its Bills This Year?
6 min read
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6 min read
A company can make a profit and still run out of cash. It happens when the bills arrive before the money does.
That is the question the current ratio answers. Can this company pay what it owes in the next 12 months with what it already has? This post shows the formula, works through an example, and explains why two companies with the same ratio can be in very different shape. It does not say any stock is a good or bad buy.
Some things a company owns will turn into cash within a year. Cash itself, money customers still owe, and goods waiting to be sold. Accountants call these current assets (aset lancar).
Some things a company owes must be paid within a year. Supplier bills, short-term loans, and the part of long-term loans due this year. These are current liabilities (liabilitas jangka pendek).
The current ratio puts one over the other.
If a company has Rp100 billion of current assets and Rp80 billion of current liabilities, the ratio is 1.25. It has Rp1.25 for every Rp1 it must pay soon.
A ratio above 1 means current assets are bigger than current bills. A ratio below 1 means they are smaller, which can signal trouble paying short-term debts (SoFi, seen through search on 28 October 2026).
Many general guides name 2 as a comfortable level. But they add that it depends on the business. Retailers and grocers often run thinner, because they sell goods fast, while heavy industry tends to run higher (search summary of several finance guides, 28 October 2026).
So treat any single cut-off as a rough guide. One Indonesian academic study of shipping companies found the range was too wide to use as a fixed rule (via search summary, 28 October 2026). Compare a company with its own sector, and with its own past.
We will use two invented companies. They are not real issuers. All numbers are NetWort arithmetic, in rupiah billions.
| Line | PT Toko Cepat | PT Toko Gudang |
|---|---|---|
| Cash | 20 | 40 |
| Money customers owe | 10 | 30 |
| Goods in stock | 70 | 30 |
| Current assets | 100 | 100 |
| Current liabilities | 80 | 80 |
| Current ratio | 1.25 | 1.25 |
Same ratio. Same size of bills. Look closer and the two are not alike.
Cash pays a bill today. Stock does not. First the company must find a buyer, and in a slow season that can take months or force a discount.
PT Toko Cepat holds most of its current assets as stock. PT Toko Gudang holds most of its in cash and money customers owe.
The quick ratio (also called the acid-test ratio) fixes this. It leaves out stock and keeps only the fast stuff. Guides point to this as the main weakness of the current ratio, since it ignores how quickly assets turn into cash (Fool.com summary, via search).
| Ratio | PT Toko Cepat | PT Toko Gudang |
|---|---|---|
| Current ratio | 1.25 | 1.25 |
| Quick ratio | (20 + 10) ÷ 80 = 0.38 | (40 + 30) ÷ 80 = 0.88 |
If the bills all came due tomorrow, PT Toko Cepat could cover only 38 sen of each rupiah without selling stock. PT Toko Gudang could cover 88 sen.
A ratio under 1 sounds scary. It is not always.
A supermarket collects cash at the till every day, but pays suppliers in 30 or 60 days. It can run a low ratio for years and be fine. A business that is paid fast and pays slowly is borrowing from its suppliers for free.
The warning sign is a ratio that is low and falling, while cash shrinks and short-term loans grow. Look at the trend over several periods, not one date.
You do not need to calculate everything by hand.
Run the same steps for the last three or four periods, then for two rivals.
If debt is your worry, read how the interest coverage ratio shows whether profits can carry the interest.
Open the Explore screener and pick two IDX companies from the same sector. Open each latest report, find the current assets and current liabilities, and work out both ratios. Then ask which one could pay its bills faster if sales slowed for a quarter.