7.2e - Ratios (Current Ratio) Flashcards by Conor Horgan | Brainscape

Q

What does current ratio measure?

A

Liquidity

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Q

Current ratio formula

A

Current assets / current liabilities

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Q

What does a current ratio of 1.5-2.0 suggest?

A

Efficient management of working capital

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Q

What does a current ratio below 1.0 indicate?

A

Cash problems

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Q

What does a high current ratio indicate?

A

Too much working capital

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Q

How can a business increase liquidity?

A

Decrease stock levels
Speed up collection of debts
Slow down payments to creditors

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