Current Ratio: Current ratio indicates the capacity of a company to pay its current liabilities.

If current liabilities are rising more rapidly than current assets, the current ratio will fall, which
could spell trouble. Because the current ratio provides the best single indicator of the extent to
which the claims of short-term creditors are covered by assets that are expected to be converted
to cash fairly quickly, it is the most commonly used measure of short-term solvency. In case of
current ratio, rule of thumb, 2:1, because, *CR>2, indicates high liquidity & low profitability.
*CR<2, indicates low liquidity & high profitability. Both terms are not accepted. So, we expect
CR=2, which indicates sufficient liquidity with good profitability.

2018 2019
Ratio Equation Pran Bashundhar Kazi Pran Bashundhar Kazi
Group a Group Group Group a Group Group
1.42 1.10 1.40 1.47 1.16 1.50
Curren Current Assets
t Ratio

Current
Liabilities

Interpretation:

A company’s performance can be measured by different aspect. One of these is liquidity ratio. In
this tool, a company tries to figure out the availability of cash or near cash asset to make
payment of different expenses. Cash in hand is a necessary thing and if timely payment is not
possible then bankrupt can happen. Current ratio refers to as the capacity of a company to pay for
its liability by the use of current asset. Current assets divided by current liabilities is referred to
as current ratio that means how many times a company can pay for its liability by using the
current asset. Here, The Pran Group’s current ratio has increased slightly increased in 2019
compared to 2018. Bashundhara Group’s and kazi Group’s current ratio has been improved also.
But if we observe the overall scenario, the Kazi Group’s liquidity position is better than other
two groups. As Current Ratio is 2:1 it is better not to cross the line. It can be said that Kazi
Group have more asset than liabilities so all the payments can be fulfilled by 1.50times. But Pran
Group and Bashundhara Group liability is more than their assets so their liquidity position is not
good.