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Most firms would like to have a current ratio of 2 or more. why might a...

Most firms would like to have a current ratio of 2 or more. why might a ratio lower than 2 be seen more favorably to shareholders?

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Answer #1

Solution:

Current Ratio shows the ability to repay short-term debts promptly.

It is one of the best measure of financial strength of the company. The idle ratio is 2:1 depends upon the type of Industry.

The idle ratio for manufacturing industry is 2:1.

Current ratio more than 1 considers good.

High Ratio indicates existence of idle Current Assets

Current Ratio calculation includes Current Assets and Current Liabilities.

The current assets should be higher than current liabilities.

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