Question

You calculate the company’s Current Ratio and find it to be 3.5. What specifically does this tell you?

Answer 1

The current ratio of 3.5 tells us that even though the company is not in any financial debt or crisis right now. It still does not indicate that the company is actually doing well. What it actually shows is that potentially, the company is not able to utilize its resources properly. There is ineffective utilization and could a factor due to not being able to secure enough financial payments or loans. It could also potentially mean that the company is not utilizing its working capital well enough. But, is currently in no danger of not being able to pay off its dues or obligations.

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