Question

A current ratio of 2.2 would appear to show that the company has a healthy current ratio. Is this statement true or false. What is the Quick Ratio for this company for 2005? Calculate the Inventory Turnover in days for 2005.

Answer 1

Current ratio of greater than 1.5 is generally considered a good current ratio, because company always want to have a higher current ratio. This is because the more current ratio is the more amount of current asset, a company has in order to discharge its current liabilities, and it reflects that a company is highly liquid in order to pay off it's debts.

So, a debt ratio of 2.2 would be highly preferable by any company as company would be highly loaded onto current assets to pay off their current liabilities and left with extra cash.

So the given statement is completely TRUE