Current Ratio
Current assets divided by current liabilities, measuring whether short-term obligations are covered by short-term assets.
Formula
Current Ratio = Current Assets / Current Liabilities
Unit
ratio (x, times)
In depth
A ratio above one means short-term assets exceed short-term obligations, and the conventional comfort level of around 1.5 to 2 is a rule of thumb rather than a rule. The measure treats all current assets as equally realisable, which is its main weakness: inventory that will not sell and receivables that will not be collected are counted at full value. A very high current ratio is not a virtue either, since it usually means capital sitting idle in stock or slow-paying customers. Businesses with negative working capital by design, such as retail, routinely show ratios below one while being perfectly solvent.
Worked example
Current assets ₹500 crore against current liabilities ₹300 crore gives a current ratio of 1.67. Strip out ₹220 crore of inventory and only ₹280 crore remains against ₹300 crore due — comfort that depends entirely on the stock selling.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Current Ratio” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.