Current Ratio

What it is\nCurrent assets (cash, receivables, inventory) divided by current liabilities (payables, short-term debt, taxes due within 12 months). Measures the safety cushion for paying near-term obligations.\n\n## Graham's rule\nBenjamin Graham (Buffett's teacher) demanded a current ratio of at least 2.0 for defensive investing. The logic: if a recession halved the company's short-term assets, it'd still cover its bills.\n\n## What "good" looks like\n- > 2.0: Graham-defensive, fortress balance sheet\n- 1.5–2.0: solid, the level most quality businesses run at\n- 1.0–1.5: workable, requires healthy cash flow to refinance\n- < 1.0: working-capital deficit — relies on continuous cash flow to stay solvent. Vulnerable in a credit crunch.\n\n## Sector context matters\nRetailers (Walmart, Target) often run current ratios below 1.0 — they collect from customers in cash before paying suppliers, so the deficit is structural and benign. Software businesses (Microsoft, Adobe) often run far above 2 — they have minimal short-term obligations.