Use Quick Mode if you already have totals from financial statements; switch to Detailed Mode to enter line items per Schedule III for component-level analysis and additional ratios.
Current Assets
Cash on hand, demand deposits, short-term liquid investments under 3 months.
FDs with maturity 3-12 months, earmarked balances, margin money.
Mutual funds, marketable securities held for <12 months.
Net of provision for ECL / doubtful debts under Ind AS 109.
Raw material, WIP, finished goods, stores & spares.
The current ratio is the most fundamental liquidity ratio. Together with the quick ratio, cash ratio and working capital, it tells you whether a business has enough short-term resources to meet short-term obligations.
The Four Liquidity Metrics
Current Ratio = Current Assets ÷ Current Liabilities
Quick Ratio = (Current Assets − Inventory − Prepaid) ÷ Current Liabilities
Cash Ratio = (Cash + Cash Equivalents) ÷ Current Liabilities
Working Capital = Current Assets − Current Liabilities (₹ amount)
Why the Different Ratios?
Each ratio progressively tightens the definition of "liquid":
Current Ratio — broadest. Includes all current assets, even slow-moving inventory and prepaid expenses
Quick Ratio (Acid Test) — strips out inventory (which may not convert to cash quickly) and prepaid expenses (which can never convert). More conservative
Cash Ratio — strictest. Only cash and equivalents. Tests whether the business could pay all current liabilities today without selling anything
Working Capital — absolute ₹ amount of buffer; useful for size context across companies
Health Zone Classification
The calculator places the current ratio in one of five zones, each with a distinct interpretation:
Stressed (below 1.0) — current liabilities exceed current assets. Immediate liquidity concern
Tight (1.0 to 1.5) — operable but no margin for error. Lender covenants typically set here
Healthy (1.5 to 2.5) — sweet spot for most industries
Comfortable (2.5 to 3.0) — strong liquidity, may be conservative
Idle (above 3.0) — likely excess working capital not being deployed productively
Industry Benchmarks
Current ratio targets vary substantially by industry due to differences in inventory cycles, receivables terms, and working capital intensity. The following ranges are indicative — always compare against listed peers in the same sector.
Industry
Typical Range
Quick Ratio Target
Manufacturing
1.5 – 2.5
0.8 – 1.2
FMCG / Trading
1.2 – 1.8
0.5 – 1.0
IT / Services
1.5 – 2.5
1.5 – 2.5
Real Estate
2.0 – 3.5
0.5 – 1.0
Infrastructure
1.2 – 2.0
0.8 – 1.5
Pharma
1.8 – 3.0
1.0 – 2.0
Hospitality
0.8 – 1.5
0.5 – 1.0
E-commerce / Retail
1.0 – 1.5
0.3 – 0.7
Construction (EPC)
1.5 – 2.5
0.7 – 1.2
Banks / NBFCs
Not applicable
Not applicable (CRAR/LCR framework)
Why Banks Don't Use Current Ratio
Banks and NBFCs operate on fundamentally different balance sheet economics — their "current liabilities" are largely deposits, and their "current assets" are loans and investments. Liquidity for banks is governed by the RBI's Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) under Basel III. Capital adequacy is measured via Capital to Risk-weighted Assets Ratio (CRAR), not current ratio.
Lender covenant alert: Working capital loan agreements typically include a minimum current ratio covenant of 1.25 or 1.33. Breaching this during the loan period can trigger default events under the loan documentation, accelerated repayment, or higher interest rates. Many companies actively manage year-end balance sheets to maintain covenant compliance — analysts call this "window dressing."
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Schedule III Classification — Current vs Non-Current
Schedule III of the Companies Act 2013 provides the format for financial statements. Division I applies to companies under AS framework; Division II applies to Ind AS-compliant companies. Both follow the same current vs non-current classification principle.
Definition of Current
An asset is classified as current if it is:
Expected to be realised, sold or consumed in the entity's normal operating cycle (default 12 months unless longer cycle exists)
Held primarily for trading purposes
Expected to be realised within 12 months from the reporting date
Cash or cash equivalent (unless restricted from use for at least 12 months)
A liability is classified as current if it is:
Expected to be settled in the normal operating cycle
Held primarily for trading purposes
Due to be settled within 12 months from the reporting date
The entity does not have an unconditional right to defer settlement beyond 12 months
Disclosed Ratios under Schedule III (FY 2021-22 amendment)
The MCA notification dated 24 March 2021 amended Schedule III Division I and Division II to require disclosure of nine financial ratios in Notes to Accounts:
Current Ratio
Debt-Equity Ratio
Debt Service Coverage Ratio
Return on Equity Ratio
Inventory Turnover Ratio
Trade Receivables Turnover Ratio
Trade Payables Turnover Ratio
Net Capital Turnover Ratio
Net Profit Ratio + Return on Capital Employed + Return on Investment
Variances of more than 25% from the previous year must be explained. Reference: MCA notification and ICAI Guidance Note on Schedule III. The underlying Companies Act framework is at India Code.
CARO 2020 connection: Clause 3(xvii) of CARO 2020 requires the auditor to report material adverse changes in cash flows or financial ratios that could affect the company's ability to meet liabilities. Current ratio is one of the primary metrics auditors examine under this clause.
Related Liquidity & Solvency Ratios
The current ratio is part of a broader framework of liquidity and solvency ratios. Understanding all of them gives a complete picture of financial health.
Ratio
Formula
What It Measures
Current Ratio
CA ÷ CL
Short-term solvency (broad)
Quick Ratio
(CA − Inv − Prepaid) ÷ CL
Short-term solvency (excl. illiquid)
Cash Ratio
(Cash + C.E.) ÷ CL
Immediate cash liquidity
Working Capital
CA − CL
Absolute liquidity buffer (₹)
Debt-Equity Ratio
Total Debt ÷ Equity
Long-term leverage
Debt Service Coverage (DSCR)
EBITDA ÷ (Interest + Principal)
Ability to service debt
Interest Coverage
EBIT ÷ Interest
Cushion above interest expense
Inventory Turnover
COGS ÷ Avg Inventory
Inventory conversion speed
Receivables Turnover
Sales ÷ Avg Receivables
Collection efficiency
Payables Turnover
Purchases ÷ Avg Payables
Supplier credit utilisation
Cash Conversion Cycle
A holistic working capital metric: CCC = DIO + DSO − DPO. Days Inventory Outstanding (DIO) measures how long inventory sits before sale. Days Sales Outstanding (DSO) measures how long receivables take to collect. Days Payable Outstanding (DPO) measures how long the entity takes to pay suppliers. A shorter (or negative) CCC means the business turns operations into cash quickly — Amazon famously operates with a negative CCC by collecting from customers before paying suppliers. SEBI's Listing Regulations require listed companies to disclose working capital metrics in MD&A.
Frequently Asked Questions
The current ratio is a liquidity ratio measuring a company's ability to meet short-term obligations using short-term assets. It is calculated as Current Assets divided by Current Liabilities. A ratio above 1 indicates current assets exceed current liabilities. The current ratio is one of the financial ratios required to be disclosed under Schedule III amendments effective FY 2021-22, and is part of the auditor's reporting under CARO 2020 Clause 3(xvii) for material adverse changes.
A current ratio between 1.5 and 2.5 is considered healthy for most industries — indicating sufficient buffer to meet short-term obligations without idle capital. Below 1.0 signals liquidity stress; 1.0 to 1.5 is tight but operable; above 3.0 may indicate underutilised assets or excess working capital. Industry context matters — services and IT companies often operate at 1.0-1.5 (low inventory), while manufacturing typically targets 1.5-2.5.
Current ratio includes all current assets — including inventory and prepaid expenses. Quick ratio (acid test) excludes inventory and prepaid expenses, focusing only on assets readily convertible to cash. Quick Ratio = (Current Assets − Inventory − Prepaid Expenses) ÷ Current Liabilities. Quick ratio is more conservative and useful when inventory turnover is slow or prepaid expenses are large. A healthy quick ratio is typically 1.0 or above.
Working Capital = Current Assets − Current Liabilities. It represents the absolute rupee buffer the business has to fund day-to-day operations. Positive working capital means current assets exceed current liabilities; negative working capital means short-term obligations exceed short-term resources. Working capital is a key metric for cash flow planning, credit appraisal by lenders, and inventory management. Net Working Capital Ratio = Working Capital ÷ Total Assets, used for comparing across company sizes.
Banks and NBFCs use current ratio as a primary indicator of short-term solvency before sanctioning working capital loans, cash credit limits or letters of credit. Most lenders impose minimum current ratio covenants (typically 1.25 or 1.33) in loan agreements. Breaching the covenant during the loan period can trigger default events, accelerated repayment, or higher interest rates. Banks also stress-test the ratio under recessionary scenarios before final credit approval.
Schedule III of the Companies Act 2013 lists eight categories of current assets: Cash and Cash Equivalents (cash, demand deposits, short-term highly liquid investments), Bank Balances other than C&CE (deposits with maturity over 3 months but within 12 months), Current Investments, Trade Receivables, Inventories, Loans (current portion), Other Financial Assets (current), and Other Current Assets (advances, prepaid expenses, GST receivable, refunds due, etc.).
Schedule III lists six categories of current liabilities: Borrowings (current — short-term loans plus current portion of long-term loans), Trade Payables (split between dues to MSMED-registered suppliers and others), Other Financial Liabilities (interest accrued, dividends payable), Other Current Liabilities (advances from customers, statutory dues, GST payable), Provisions (current — bonus, leave, warranty), and Current Tax Liabilities net of advance tax and TDS.
Manufacturing typically targets 1.5 to 2.5 due to inventory and receivables. Trading and FMCG operate at 1.2 to 1.8 with high inventory turnover. IT and services often run at 1.0 to 1.5 with minimal inventory. Real estate and infrastructure can show 2.0 to 3.0+ due to project receivables. Banks and NBFCs do not use current ratio — they follow CRAR and liquidity coverage ratio frameworks. Always compare against industry peers, not absolute benchmarks.
A current ratio above 3.0 may signal inefficiency rather than strength — excess cash, slow-moving inventory, or uncollected receivables. It can mean the company is not deploying working capital productively to generate returns. Investors may interpret it negatively if cash is held idle while opportunities exist for capex, R&D, dividends or debt reduction. Auditors examine high current ratios as part of analytical procedures to identify potential overstatement of receivables or inventory.
Schedule III defines current assets as those expected to be realised within 12 months from reporting date, held primarily for trading, or that are cash and cash equivalents. Current liabilities are those due within 12 months or that the company does not have an unconditional right to defer settlement beyond 12 months. The 12-month operating cycle is the default unless a longer normal cycle exists for the business. Division I applies to AS framework, Division II to Ind AS framework.
Cash Ratio is the most conservative liquidity ratio — only cash and cash equivalents divided by current liabilities. It excludes receivables, inventory and other current assets. Cash Ratio = (Cash + Cash Equivalents) ÷ Current Liabilities. A cash ratio above 0.5 indicates strong immediate liquidity. Lenders often examine cash ratio for distressed companies; investors use it for crisis scenario testing. Most healthy companies operate at 0.2 to 0.5 cash ratio.
Strategies to improve current ratio include: convert short-term debt to long-term debt (reduces current liabilities), accelerate receivables collection, reduce slow-moving inventory, raise long-term equity or debt to strengthen current assets, defer non-essential current liabilities. Sale-and-leaseback of fixed assets can free up cash. Improving the ratio should be balanced — too aggressive a focus on the ratio can starve working capital and damage operations or supplier relationships.
Current ratio has several limitations: it ignores composition (inventory-heavy CA may overstate liquidity), uses point-in-time data (year-end window dressing possible), does not capture cash flow timing, treats all current liabilities as equally urgent, and can be manipulated through period-end cut-offs. A high ratio does not always indicate financial strength. The ratio should be analysed alongside quick ratio, cash flow from operations, debt-equity ratio, and trend over multiple periods for meaningful insight.