Concept Explanation
Ans. Meaning: Current ratio is a ratio showing the relationship between current assets and current liabilities.
Formula: Current ratio is calculated as per the following formula:
$$ \text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}} $$
Components of Current Ratio: The following are the components of Current Ratio.
Current Assets: Cash and Bank balances, debtors, bills receivable, stock of goods, prepaid expenses, short loans, advances given, incomes receivable, disposable investments etc.
Current Liabilities: Bank overdraft, creditors, bills payable, outstanding expenses, short term loan taken, provision for taxation, pre received income, proposed and unclaimed dividend etc.
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