What does a current ratio of less than 1 indicate about a company's financial health?

A current ratio of less than 1 indicates that a company's current liabilities exceed its current assets. This is a key measure of liquidity, reflecting the company’s ability to cover its short-term obligations with its available short-term assets.

When the current ratio is below 1, it suggests potential financial distress because the company might struggle to pay off its debts due within the next year. Many financial analysts consider a current ratio of 1 or higher as a sign of good financial health, as it indicates that there are enough assets to cover liabilities. A ratio below 1 could raise red flags for creditors and investors, as it implies a reliance on future cash flows or additional financing to satisfy immediate obligations. This scenario can often lead to solvency issues if not addressed.

The other options do not accurately reflect the implications of a current ratio under 1; hence, they do not support the overall picture of financial health that this ratio conveys.