None of these thresholds is a law of nature. Each one is a sector habit. The table below gives order-of-magnitude norms for a typical, decent operator. They're analyst rules of thumb to calibrate against, and they aren't for grading. Phase 5 sharpens each row into a full playbook.
What is a normal current ratio for each industry?
| Sector | Current ratio | CCC (days) | Net debt/EBITDA | Interest coverage |
|---|---|---|---|---|
| Grocery retail | 0.8–1.2 | −10 to +30 | 0–1.5× (ex-lease quirks) | High |
| FMCG / staples | 0.8–1.3 | Negative to +30 | Often net cash | Very high / n.m. |
| IT services | 2–3+ | 40–70 (all DSO) | Net cash | n.m. |
| Pharma (generics) | 1.5–2.5 | 90–150 | 0–2× | 6×+ |
| Capital goods / EPC | 1.2–1.5 | 60–120+ (pre-advances) | 0–2× | 4–8× |
| Telecom / utilities | 0.4–0.8 | Negative (prepaid/billing) | 2.5–4× | 3–5× |
| Airlines | 0.4–0.8 | Negative | 2–4× (incl. leases) | 1.5–3× |
| Real-estate developers | 1.5–3 (inventory-heavy) | 300+ | Project-level; post-RERA D/E < 0.5× | Lumpy |
Two habits make the table useful. First, ask why each cell is what it is. IT services' whole cycle is receivables, because it holds no inventory. Telecom bills in advance and pays vendors in arrears, so its "alarming" 0.5 current ratio is structural. Second, the finding is how far a company deviates from its sector. Distance from 2.0 isn't the finding.
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Why don't these ratios work for banks and insurers?
For banks and NBFCs, and for insurance companies, the whole toolkit switches off. These ratios are worse than noisy there. They're category errors:
- No current/non-current split. Bank balance sheets aren't classified that way, under RBI's Banking Regulation formats or their counterparts elsewhere, so a "current ratio" can't even be computed. A bank's liquidity is read through LCR, ALM gap buckets and CASA. That's different machinery, covered in the M5 banking playbook.
- Leverage is the business model. A bank with equity at 8 to 12% of assets runs a "D/E" of 8 to 11× by design and by regulation. Its real solvency ratio is capital adequacy, measured by CRAR/CET1. Calling HDFC Bank "over-leveraged" on a corporate yardstick is a beginner's tell.
- Interest is COGS. For a bank, interest expense is the cost of raw material. It isn't a financing charge. That makes TIE and net debt/EBITDA meaningless, and EBITDA itself too. The margin that matters is NIM.
- No inventory, no CCC. For insurers, "float" is the entire business. Both the M5 playbook and Buffett's letters show it.
So carry one rule: first classify the business model, then choose the ratio set. For roughly 85% of listed companies the toolkit applies directly. For financials, put it away. Reach for Phase 5's instruments instead. Utilities and infrastructure fall in between. The toolkit applies, but regulated cash flows justify leverage that would sink an industrial.