What is a good current ratio?

1.5 to 2.5 is generally healthy. Below 1 means potential trouble paying short-term obligations. Above 3 may mean inefficient use of assets.

Current ratio vs quick ratio?

Quick ratio excludes inventory from current assets. It's a stricter test since inventory may not be quickly convertible to cash.

Current Ratio Formula — Short-Term Liquidity

The current ratio measures a company's ability to pay its short-term liabilities with its short-term assets. It's the most basic test of financial health.

Current Ratio Formula

Current Ratio = Current Assets / Current Liabilities

Where:

CA = Current assets (cash, receivables, inventory)
CL = Current liabilities (payables, short-term debt)

Step-by-Step:

1
Find current assets
Cash, receivables, inventory, and other assets convertible within 1 year.
2
Find current liabilities
Payables, short-term borrowings, and obligations due within 1 year.
3
Divide
CA / CL. Result >1 means more assets than liabilities.

Worked Examples:

Company liquidity

Current Assets: ₹15 CrCurrent Liabilities: ₹10 Cr

Result: 1.5

15/10 = 1.5. Company has ₹1.50 in current assets for every ₹1 of current liabilities — healthy.