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:

Current Ratio: Current Assets / 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.