Determinants of current ratios: a study with reference to companies listed in Bombay stock exchange

Abstract

Current ratio measures the liquidity and margin of safety that companies maintain in order to allow for the inevitable unevenness in the flow of funds. The present study examines the trend and determinants of current ratios of listed companies in India using panel least square with fixed and random effect. The analysis is based on data collected from 219 companies of Bombay Stock Exchange 500 index. The study evaluated the determinants of current ratios and trend in sector wise as well as sample taken as a whole. The result of the study shows current ratio is showing a negative trend in last decade. Receivable days, payable days, inventory days and size of the firm are the major determinant of current ratio. Inventory turnover does not have any impact for determine current rati