abhishreshthaa
Abhijeet S
Significance:
1. Current ratio is a measure of short term solvency
2. It indicates the firm’s ability to meet short term requirements
3. It represents a margin of safety to short term creditors
Standard:
Traditionally a current ratio of 2:1 is considered satisfactory. But if it is lower it does not necessarily mean the business is in financial difficulty.
It is dependent like working capital on the nature of the business, trade cycles etc. Similarly a very high current ratio is not always better. It might indicate an over investment in stock, or slow moving stock or slow-paying debtors.
1. Current ratio is a measure of short term solvency
2. It indicates the firm’s ability to meet short term requirements
3. It represents a margin of safety to short term creditors
Standard:
Traditionally a current ratio of 2:1 is considered satisfactory. But if it is lower it does not necessarily mean the business is in financial difficulty.
It is dependent like working capital on the nature of the business, trade cycles etc. Similarly a very high current ratio is not always better. It might indicate an over investment in stock, or slow moving stock or slow-paying debtors.