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If current Assets for Company B in 2020 is 65,032 and current liabilities is 26,287, it's...

If current Assets for Company B in 2020 is 65,032 and current liabilities is 26,287, it's current ratio( current assets to liabilities ) is 2.47 which equals 247%. Therefore, does this result imply assets is more than 2x the coverage of liabilities?

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Answer #1

No, this result does not imply assets is more than 2x the coverage of liabilities.

Current Ratio which is calcuated by dividing current assets by current liabilities only depicts whether the "current" assets (short-term assets) of a company are sufficient to meet its "current" liabilities (short-term debt obligations).

However a company also has long-term debt obligations to meet. Hence current ratio of 2.47 only implies that the company has 2.47 times more current assets than its current liabilities and not that total assets are more than 2x coverage of total liabilities.

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