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Answer Posted / jyothi.p
Current Ratio= Current Assets/Current Liabilities
Where Current Assets= cash in hand, cash at bank,
debitors,bills receivable, work in progress,closing stock,
shortterm investments, prepaid expenses etc.
Where Current liabilities= trade creditors,Bills
payable,bank overdraft,income tax payable,outstanding
expenses,shortterm advances etc.
A ratio equals or near to 2:1 is satisfactory
High current ratio indicates the firm is liquid and has an
ability to pay its current obligations in time
Low current ratio represents that the firms
liquidity/working capital position is not good & company
may face problems in payment of current liabilities.
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