I’m not understanding the current ratio and debt to equity ratio.

I thought the current ratio is assets/liabilities

And debt to equity is well, debt/equity.

What doesn’t make sense is how can a company have the following:

Debt-to-equity: 0.15

Current ratio: 1.02

This says the company has a lot of equity and barely any debt, but total assets are barely larger than total liabilities?

Doesn’t make sense to me.

1 Answer 1


Current ratio only looks at current assets and liabilities, meaning liabilities that are due in less than one year, and assets that are expected to be converted into cash in one year or less (like inventory and A/R).

Debt/Equity typically looks at ALL debt (there is also a long-term debt to equity which can be meaningful, though).

So your interpretation is almost correct - the company has relatively low total debt, but it has short-term liabilities (lines of credit, accounts payable) that are just barely covered by its cash-generating assets.

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