What does a current ratio less than 1 indicate?

A current ratio less than 1 indicates that a company's current liabilities exceed its current assets, which raises concerns about its ability to meet short-term obligations. This situation suggests potential liquidity issues, as the company may not have enough liquid assets readily available to cover its debts as they come due. A ratio below 1 highlights the risk of cash flow problems and could signal that the company may struggle to operate effectively in the near term unless it can quickly generate cash or restructure its obligations.

In contrast, a current ratio above 1 generally signifies a healthier liquidity position, allowing for greater financial flexibility.