By VestAI Research | Last updated: March 2026
Current Ratio: Meaning, Definition & Indian Stock Market Examples
Current assets ÷ current liabilities — measures short-term liquidity.
What is Current Ratio?
Current Ratio = Current Assets ÷ Current Liabilities. It shows whether a company has enough short-term assets to cover its short-term obligations. A ratio above 1 means current assets exceed current liabilities; below 1 means the company may struggle to meet near-term obligations.
Current Ratio — Indian Stock Market Example
Pharmaceutical companies like Sun Pharma typically maintain current ratios above 2.0 due to high inventory and receivables. FMCG companies with strong brand power often have lower ratios as they collect cash quickly from distributors. Infrastructure companies sometimes run tight current ratios due to long project cash cycles.
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Analyse with OrionFrequently Asked Questions about Current Ratio
What is the quick ratio and how is it different?
Quick Ratio = (Current Assets − Inventory) / Current Liabilities. It excludes inventory (which may not be quickly convertible to cash) for a stricter measure of short-term liquidity. A quick ratio above 1 is generally considered safe.
Can current ratio be too high?
Yes. Excessively high current ratio (above 4–5) may indicate idle cash, excessive inventory, or inefficient use of capital. Investors should check whether excess cash is being deployed productively or just sitting on the balance sheet.
Related Terms
Quick Ratio
(Current assets − inventory) ÷ current liabilities — stricter liquidity test.
Working Capital
Current assets minus current liabilities — the buffer for day-to-day operations.
Debt-to-Equity Ratio
Total debt divided by shareholder equity — measures financial leverage.
Free Cash Flow
Operating cash flow minus capex — actual cash available after maintaining business.
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