Asked by: Ximei Toaquizabusiness and finance debt factoring and invoice discounting
What is a company's current ratio?
Last Updated: 26th February, 2020
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Simply so, what is a good current ratio for a company?
Acceptable current ratios vary from industrytoindustry and are generally between 1.5% and 3% forhealthybusinesses. If a company's current ratio is in thisrange,then it generally indicates good short-termfinancialstrength.
Additionally, what does a good current ratio mean? A current ratio of between 1.0-3.0 isprettyencouraging for a business. It suggests that the businesshasenough cash to be able to pay its debts, but not too muchfinancetied up in current assets which could bereinvestedor distributed to shareholders.
Similarly one may ask, how do you interpret current ratio?
If Current Assets > CurrentLiabilities,then Ratio is greater than 1.0 -> adesirable situation tobe in. If Current Assets =Current Liabilities, thenRatio is equal to 1.0 ->Current Assets are justenough to paydown the short termobligations.
What affects current ratio?
The operations current ratio is obtainedbydividing total current assets by the totalcurrentliabilities and expressed as that result to one.Example: Totalcurrent assets of $755,248 divided by totalcurrentliabilities $359,342 =2.10:1. For every one dollarofcurrent debt the is 2.1 dollars ofcurrentassets.