The current ratio gauges your liquidity and ability to meet short-term obligations.
A higher current ratio generally indicates greater liquidity. Ideally, you want your current ratio to be above 1, signifying that you have enough current assets to cover your short-term debts. However, the optimal ratio can vary depending on your specific circumstances.
A current ratio below 1 is the real warning sign: it means covering this month’s bills would force you to sell long-term assets or borrow. Debt itself is not the enemy — a mortgage or a margin line, used deliberately, is leverage, and the rest of this book treats it as a tool. The debt to avoid is the kind taken on to fund consumption you could not otherwise afford: that is simply spending tomorrow’s income today, and it has a habit of compounding against you.