Question

4) Answer the following questions regarding the current ratio: Answer Current Ratio Question What does the current ratio meas

0 0
Add a comment Improve this question Transcribed image text
Answer #1

The current ratio Measures a company's ability to pay short-term obligations within one year.

Current ratio portraits to investors and analysts how a company can maximize the Current assets on its balance sheet to satisfy its current debt and other payables.

Current ratio is a liquidity ratio

CURRENT RATIO CALCULATION

current assets

-----------------------

Current liabilities

RULE OD THUMB WHILE ANALYSING CURRENT RATIO

Though the ideal current ratio depends to some extent on the type of business, a general rule of thumb is that it should be at least 2:1

A lower current ratio indicates Company was unable to pay it's short term debts. A higher current ratio indicates company is having surplus cashthat could be put to better use in the business.

Current ratio of a company is compared with that of industry to analyse companies performance If current ratio is lower than the industry average it indicates a higher risk of default. Similarly, if a company has a very high current ratio, it indicates that management may not be using their assets efficiently.

Add a comment
Know the answer?
Add Answer to:
4) Answer the following questions regarding the current ratio: Answer Current Ratio Question What does the...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions
  • Answer the following questions regarding this distribution: (1, 1, 2, 2, 3, 4, 4, 4, 5,...

    Answer the following questions regarding this distribution: (1, 1, 2, 2, 3, 4, 4, 4, 5, 6, 7, 8} a. Is it symmetric or asymmetric? 2inlo Symmetric Asymmetric Cognitive psychologist would like to evaluate the claim that the omega-3 fatty acids in fish can help improve memory in normal adult humans. One group of participants is given a pills containing a large dose of fish extract containing the Omega-3 (500 mg per day), and a second group is given a...

  • QUESTION ANSWER Which of the following is generally a FALSE statement for the current ratio analysis?...

    QUESTION ANSWER Which of the following is generally a FALSE statement for the current ratio analysis? Current ratios measure the ability of the company to pay its Current Liabilities with Current Assets. Companies want a current ratio number below O O O OO A potential lender, such as a bank, might use the current ratio to predict if the business borrowing the money can repay. A business with a lot of debt (Liabilities) will have a higher current ratio. I...

  • Answer each of the questions in the following unrelated situations. (a) The current ratio of a...

    Answer each of the questions in the following unrelated situations. (a) The current ratio of a company is 5:1 and its acid-test ratio is 1:1. If the inventories and prepaid items amount to $497,000, what is the amount of current liabilities? Current Liabilities $ (b) A company had an average inventory last year of $204,000 and its inventory turnover was 6. If sales volume and unit cost remain the same this year as last and inventory turnover is 8 this...

  • Answer each of the questions in the following unrelated situations. (a) The current ratio of a...

    Answer each of the questions in the following unrelated situations. (a) The current ratio of a company is 5:1 and its acid-test ratio is 1:1. If the inventories and prepaid items amount to $531,000, what is the amount of current liabilities? Current Liabilities $ (b) A company had an average inventory last year of $180,000 and its inventory turnover was 6. If sales volume and unit cost remain the same this year as last and inventory turnover is 8 this...

  • please answer all 4 multiple choice questions QUESTION 37 The ratio of fixed expenses to the...

    please answer all 4 multiple choice questions QUESTION 37 The ratio of fixed expenses to the contribution margin ratio is the indifference point break-even point in units. fixed cost ratio. break-even point in sales. sensitivity analysis. QUESTION 38 If the contribution margin ratio increases, the break-even point in sales dollars will double. remain the same. increase. decrease. to cane all answers. QUESTION 35 The predetermined overhead rate is usually calculated at the end of the year. at the beginning of...

  • Financial ratio question - Interpretation 1 Current Ratio: How does the quick ratio differ from the...

    Financial ratio question - Interpretation 1 Current Ratio: How does the quick ratio differ from the current ratio? Days in inventory [inventory age] : what is relationship between Inventory age [ inventory / ( Annual COGS/365)]   and the “ Liquidity condition” Inventory Turnover [COGS/inventory]: given its relation to inventory age, why use COGS instead of Sales? Day In Receivables [average collection Period ] = A/Rs / (annual Credit Sales /365) Why only credit sales are included in calculating this ratio?...

  • 6. Please answer the following questions regarding electrical circuits. a) Describe, using plots, diagrams and/or words...

    6. Please answer the following questions regarding electrical circuits. a) Describe, using plots, diagrams and/or words (not equations) how: i. resistance and reactance are different ii. inductors and capacitors store energy. b) When a circuit is said to be 'impedance matched', how does the resistance of that circuit change and why? c) Is current the same at all nodes in a series circuit? Defend both the'yes' and 'no position with two reasons each.

  • answer questions 2 -5 PPUUOHUMCU LAULISU Answer the following questions via Microsoft Word: 2. Solvency Ratio...

    answer questions 2 -5 PPUUOHUMCU LAULISU Answer the following questions via Microsoft Word: 2. Solvency Ratio Total Net Worth divided by Total Assets Solvency ratio measures how much cushion you have before insolvency If you move from a Solvency ratio of 40 to a ratio of 30, Good or Bad? Explain your answer. 3. Liquidity Ratio Total Liquid Assets divided by Total Current debt liabilities) Liquid assets include Cash, Savings Accounts, Money Market accounts, and Certificates of deposit. Liquidity ratio...

  • Answer each of the questions in the following unrelated situations. (a) The current ratio of a company is 6:1 and its a...

    Answer each of the questions in the following unrelated situations. (a) The current ratio of a company is 6:1 and its acid-test ratio is 1:1. If the inventories and prepaid items amount to $544,000, what is the amount of current liabilities? Current Liabilities (b) A company had an average inventory last year of $200,000 and its inventory turnover was 6. turnover is sales volume and unit cost remain the same this year as last and inventory this year, what will...

  • Discuss the following regarding non-GAAP financial measures used in publicly held companies’ reports filed with the...

    Discuss the following regarding non-GAAP financial measures used in publicly held companies’ reports filed with the SEC. Don’t just give a short answer but have a discussion on each question: What is a non-GAAP financial measure? Give an example of at least one non-GAAP financial measure and how it is calculated and how it is used.

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT