What financial information does the current ratio measure?
November 19th, 2008 | by admin |qtpie34 asked:
How does the current ratio relate to other liquidity ratios? Which financial ratios would you use and explain how a bank would determine whether a company will be able to meet its commercial bank loan payments?
How does the current ratio relate to other liquidity ratios? Which financial ratios would you use and explain how a bank would determine whether a company will be able to meet its commercial bank loan payments?
One Response to “What financial information does the current ratio measure?”
By dreygo64 on Nov 19, 2008 | Reply
Current ratio is equal to current assets divided by current liabilities. If the current assets of a company are more than twice the current liabilities, then that company is generally considered to have good short-term financial strength. If current liabilities exceed current assets, then the company may have problems meeting its short-term obligations. This ratio is considered one of the indicators of the ability to pay bills in a timely fashion, though it is not the only measure.
“Current” is the descriptive used for short turnaround assets and liabilities. Accounts receivable and payable…inventory…cash on hand are all examples of items that would be used in the current ratio.