Bills due soon against cash available soon
Companies fail more often from running out of cash than from being unprofitable. The current ratio is the quickest check against that. It divides current assets, meaning cash, unpaid customer bills and inventory, by current liabilities, meaning everything owed within the next twelve months.
A ratio of 2.0 means there is twice as much arriving as there is falling due. A ratio of 0.8 means the company owes more over the coming year than it currently has arriving, so it will need to keep trading well, or borrow, to bridge the gap.
Nike, line by line
Nike recently held current assets of roughly $25 billion against current liabilities of about $11 billion. Divide 25 by 11 and the current ratio is approximately 2.3.
That is a comfortable position with plenty of room. It says the company could settle everything due in the coming year more than twice over from assets it already holds, without needing to borrow or sell anything long-term.
Rounded recent figures, shown so the calculation is easy to follow.
When a very high ratio is a criticism
Beginners assume higher is always safer, and past a point it stops being a compliment. A ratio of 5.0 often means large sums are sitting idle in cash earning very little, or that inventory is piling up because products are not selling.
Well-run retailers frequently run ratios near 1.0 on purpose. They sell inventory quickly, collect from customers immediately at the till, and pay suppliers later, which is efficient rather than risky. Costco operates in roughly that territory and is not remotely fragile.
The word "current" is doing a lot of work
Inventory counts as a current asset, but inventory is only worth its recorded value if somebody buys it at that price. Unsold fashion, obsolete electronics and slow-moving parts can sit in that figure looking like near-cash when they are nothing of the sort.
The stricter version, often called the quick ratio, removes inventory entirely and asks whether cash and unpaid customer bills alone can cover the coming year. For any company whose products can go out of fashion, that harsher figure is the one worth checking.
Where it belongs in a Stax plan
This is a floor rather than a ranking. Setting a minimum ratio removes companies that could be forced into an awkward funding decision during a bad quarter, which is exactly the kind of company whose share price falls hardest when conditions turn.
Combine it with a debt limit and a profitability rule, then have Stax test the whole plan against five or more years of real prices. The result shows how the combination behaved through the difficult stretches, not just the calm ones.