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i found a current ration 1.81 and the question says compare it To the industry average...

i found a current ration 1.81 and the question says compare it To the industry average current ration 2.2 ?
need answer and explication for that

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Answer #1

Current ratio is a useful test ratio to know the company paying ability of the short term debt of the business. It is general tool to measure liquidity of the company. The ideal current ratio is 2: 1. It is a stark indication of the financial soundness of a business concern and considered satiofactory for most of the industry.

The compant have current ratio 1.81, it is satisfactory ans shows that company have liquidity to pay short term debts but considering industry current ratio 2.2 ,which indicates that the competitors having better liquidity position and have more funds to meet short term reuirements.

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