Current and Quick Ratio
THEFINANSWERS | BANKING PROMOTION STUDY NOTES
Current Ratio & Quick Ratio
Dono liquidity ratios hain. Ye samajhne mein help karte hain ki business apni short-term liabilities meet karne ki kya capacity rakhta hai.
Simple meaning: “Aane wale payments ke liye business ke paas kitne suitable assets hain?”
1. Current Ratio
Formula:
Current Ratio = Current Assets/ Current LiabilitiesCurrent assets mein inventory, trade receivables, cash, current investments aur prepaid expenses jaise items aa sakte hain. Current liabilities mein trade creditors, outstanding expenses aur short-term borrowings jaise items aate hain. Classification question mein diye facts ke according karo.
Example
| Particulars | Amount |
|---|---|
| Cash and bank balance | ₹2 lakh |
| Trade receivables | ₹5 lakh |
| Inventory | ₹4 lakh |
| Prepaid expenses | ₹1 lakh |
| Total current assets | ₹12 lakh |
| Current liabilities | ₹6 lakh |
Current Ratio = 12 ÷ 6 = 2:1
Iska matlab: har ₹1 ki current liability ke against ₹2 ke current assets hain.
Dhyan rahe—iska matlab ₹2 cash available hona nahi hai. Assets ka kuchh hissa stock aur debtors mein ho sakta hai.
2. Quick Ratio / Liquid Ratio / Acid-Test Ratio
Quick Ratio comparatively stricter liquidity measure hai. Ismein un current assets ko exclude karte hain jo readily payment ke kaam nahi aate.
Formula:
Quick Ratio = Quick Assets/ Current LiabilitiesQuick Assets = Current Assets − Inventory − Prepaid Expenses − Other non-quick current assets
NCERT ke treatment mein advance tax bhi exclude hota hai. Question mein specific definition di ho to usko follow karo.
Inventory kyun exclude hoti hai?
Stock ko pehle sell karna pad sakta hai. Credit sale hone par cash collection mein aur time lagega.
Prepaid expenses kyun exclude hote hain?
Advance mein paid insurance business ko future benefit deta hai; generally usse creditor ka payment nahi kar sakte.
Upar wale example mein:
Quick Assets = ₹12 − ₹4 − ₹1 = ₹7 lakh
Quick Ratio = 7 ÷ 6 = 1.17:1
Matlab: har ₹1 ki current liability ke against approximately ₹1.17 ke quick assets hain.
3. Dono mein difference
| Point | Current Ratio | Quick Ratio |
|---|---|---|
| Numerator | Total current assets | Quick assets |
| Inventory | Included | Excluded |
| Prepaid expenses | Included, if current | Excluded |
| Focus | Overall short-term asset cover | More immediate liquidity cover |
| Traditional textbook benchmark | 2:1 | 1:1 |
Benchmarks ko universal lending rules mat samjho. Industry, operating cycle, asset quality aur applicable bank policy matter karte hain. High Current Ratio bhi liquidity guarantee nahi karta, especially jab stock slow-moving ho.
4. Same Current Ratio, different liquidity
Amounts in ₹ lakh; assume no other assets or liabilities.
| Particulars | Business A | Business B |
|---|---|---|
| Current assets | 20 | 20 |
| Inventory | 14 | 6 |
| Prepaid expenses | 1 | 1 |
| Current liabilities | 10 | 10 |
| Current Ratio | 2:1 | 2:1 |
| Quick assets | 5 | 13 |
| Quick Ratio | 0.5:1 | 1.3:1 |
Interpretation: Dono ka Current Ratio same hai, lekin A ka cover inventory par zyada dependent hai. B ke paas comparatively zyada quick assets hain. Final assessment mein receivables ki recoverability bhi check karni hogi.
5. Important numerical shortcuts
A. Net Working Capital
NWC = Current Assets/ Current LiabilitiesAgar Current Ratio 2.5:1 aur current liabilities ₹8 lakh hain:
- Current assets = 2.5 × ₹8 lakh = ₹20 lakh
- NWC = ₹20 − ₹8 = ₹12 lakh
B. Ratios se inventory nikalna
Agar inventory hi sole excluded item hai:
Inventory = (Current Ratiot - Quick Ratio) * CLExample: CR = 2.4, QR = 1.4, CL = ₹5 lakh.
Inventory = (2.4 − 1.4) × ₹5 lakh = ₹5 lakh
Exam trap: Prepaid expenses bhi present hon to difference inventory + prepaid expenses, aur koi other excluded items bhi, represent karega.
6. Transactions ka impact
Starting position: CA ₹12 lakh, QA ₹8 lakh, CL ₹6 lakh.
Har transaction ko independently consider karo.
| Transaction | New Current Ratio | New Quick Ratio |
|---|---|---|
| ₹2 lakh creditor paid from cash | 10/4 = 2.50 | 6/4 = 1.50 |
| ₹2 lakh inventory bought on credit | 14/8 = 1.75 | 8/8 = 1.00 |
| ₹2 lakh inventory bought for cash | 12/6 = 2.00 | 6/6 = 1.00 |
| ₹2 lakh collected from debtors | 12/6 = 2.00 | 8/6 = 1.33 |
Yaad rakho:
- Cash se stock kharidne par Current Ratio unchanged reh sakta hai, par Quick Ratio girta hai.
- Debtor se cash receive hone par dono ratios unchanged rehte hain—assuming full collection without discount.
- Liability repay karne ka impact starting ratio par depend karta hai; “repayment always improves ratio” galat hai.
7. Banker ko kya examine karna chahiye?
Ratio calculate karne ke baad poochho:
- Stock saleable hai ya obsolete?
- Debtors time par recover ho rahe hain?
- Cash freely available hai ya restricted?
- Year-end position normal business activity represent karti hai?
- Current liabilities ki classification complete hai?
Strong ratio + weak asset quality = further investigation required.
8. Practice questions
Q1. CA ₹15 lakh, CL ₹6 lakh. Current Ratio?
A. 1.5 B. 2 C. 2.5 D. 3
Q2. CA ₹18 lakh, stock ₹6 lakh, prepaid expenses ₹2 lakh, CL ₹8 lakh. Quick Ratio?
A. 1.00 B. 1.25 C. 1.50 D. 2.25
Q3. Inventory cash mein purchase karne par, other things unchanged:
A. Dono ratios improve
B. Current Ratio unchanged; Quick Ratio decreases
C. Dono unchanged
D. Current Ratio decreases; Quick Ratio unchanged
Q4. CR 2.2, QR 1.4, CL ₹10 lakh. Inventory sole excluded item hai. Inventory?
A. ₹6 lakh B. ₹8 lakh C. ₹14 lakh D. ₹22 lakh
Answers with explanation
1—C: 15 ÷ 6 = 2.5:1.
2—B: (18 − 6 − 2) ÷ 8 = 1.25:1.
3—B: Cash decreases aur inventory increases equally; quick assets decrease.
4—B: (2.2 − 1.4) × 10 = ₹8 lakh.
Revision line:
Current Ratio mein stock included; Quick Ratio mein stock aur prepaid expenses excluded. Dono ko asset quality aur business context ke saath interpret karo.
Put it into practice with a timed mock test.
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