Question

Can a ratio be too high or too low? A higher current ratio is generally considered to be better, but can a current ratio be too high? What do you think?

Answer 1

Can a ratio be too high or too low? A higher current ratio is generally considered to be better, but can a current ratio be too high? What do you think?

Yes, a ratio can be too high or too low depending upon the level of current assets and current liabilities at a given point of time.

A higher current ratio is generally better because it impllie that the company can meet its current liabilities without any problem.

The current ratio = Current assets ÷ Current liabilities

The current ratio can be too high when the company has a huge amount of current assets and a lower amount of current liabilities.