Question 1 of 18
Why can a contractor with a strong current ratio still have trouble making next week's payroll?
Strong Interview Answer
A current ratio is a point-in-time liquidity ratio: current assets divided by current liabilities. It does not show when receivables will convert to cash. A contractor can look liquid on paper while overdue receivables, retainage, or slow billing leave too little cash for near-term obligations.
What to Listen For
- current ratio formula
- timing of collections
- cash versus accounting liquidity
- receivables/retainage
Caution
Listen for the limitation of the ratio, not a claim that the current ratio itself is a cash-flow statement.