What does a current ratio of less than 1 signify?

A current ratio of less than 1 indicates that a company's current liabilities exceed its current assets, meaning it does not have sufficient assets that are expected to be converted into cash within one year to meet its short-term obligations. This situation signifies potential liquidity issues, suggesting the company may struggle to pay its debts as they come due in the short term.

Financial analysts often consider a current ratio less than 1 as a red flag; it may imply that the company could face cash flow problems. In contrast, a current ratio above 1 would generally indicate that the company has more current assets than current liabilities, pointing to better liquidity and financial health.