UNIT 7 - Current Ratio

Question 1

what type of ratio

Answer 1

liquidity

Question 2

what does it measure

Answer 2

how liquid compay is

Question 3

formula

Answer 3

current assets/current liabilities

Question 4

where can we find things needed for formula

Answer 4

Balance sheet q

Question 5

Example of CA

Answer 5

DEBTORS , STOCK , CASH

Question 6

Examples of CL

Answer 6

Overdrafts
creditors

Question 7

if myc urrent ratio is 2 how would i write it

Answer 7

2:1

Question 8

what does current ratio of 2:1 mean

Answer 8

for every £2 of current assets you have £1 of current liabilities

Question 9

what is benchmark ratio and what is the range

Answer 9

2

1.5-2.5

Question 10

benchmark and ratio depend on and give example

Answer 10

industry for example insurance companies would have high ca:cl as get large sums of monthly repayments

Question 11

ratio of 2:1 suggests

Answer 11

good liquidty

good working capital mangment

Question 12

why does 2 show good liquidty

Answer 12

have enough current assets to cover current liabilities twice

Question 13

why does 2 show good working capital management

Answer 13

because wanna make sure got more current assets than current liabilities

Question 14

there comes a pint when current ratio is too much as…

Answer 14

as only certain amount of times you should be able to cover current liabilities, don’t need it to be 10 times

Question 15

give example of high current ratio

Answer 15

10:1

Question 16

what is important to consider about high ratios

not as …

Answer 16

bad as low numbers but can still be a problem

Question 17

what is the reason for high current ratio

Answer 17

high debtors, cash , stock

Question 18

to reduce our high current ratio what can we do about debtors

Answer 18

chase up debts quicker

maybe use debt factoring but could damage reputaiont with customers but depdns is this a repeat service bs

e.g

Question 19

to reduce high curent ratio what can we do about cash /consider

Answer 19

we can be employing it instead of just eltting it sit there for example use it for a team building day to boost morale

Question 20

to reduce high curent ratio what can we do about stock

Answer 20

putting on sales/reduce prices to prevent obsoletion and release cash held up in stock that can be employed or used for investment into R&D for diversification to protect a bs from changes and vulnerablities int heir own segments

Question 21

how does high current ratio show ood liquidity

Answer 21

shows able to cover CL

Question 22

Why does high current ratio show poor wc managment

Answer 22

could be doing something better with current assets i.e investing elsewhere

Question 23

give exaxmple of low current ratio

Answer 23

0.5:1

Question 24

why is 0.5 a worse case scenraio of current rati

Answer 24

less than 1

Question 25

low current ratio i.e 0.5 means

and what does it indicate

Answer 25

Means unable to cover ST liabilities

indicating massive cash flow issues]
as not able to pay people you owe