Current Ratio Analysis

&NewLine;<&excl;-- WP QUADS Content Ad Plugin v&period; 2&period;0&period;95 -->&NewLine;<div class&equals;"quads-location quads-ad1" id&equals;"quads-ad1" style&equals;"float&colon;left&semi;margin&colon;0px 0px 0px 0&semi;">&NewLine;&NewLine;<&sol;div>&NewLine;<p align&equals;"justify">&NewLine;<p align&equals;"justify">The current ratio is very poplar liquidity ratio&semi; it is used to determine the short term liquidity of the company means that enough current assets &lpar;Cash&comma; prepaid Insurance&comma; Cash equivalents&comma; Account receivable and Inventory etc&rpar; are available with company to meet it short term liabilities obligations&period;<&sol;p>&NewLine;<p align&equals;"justify">In other words current ratio determines the company ability to pay off its short term liabilities via available current assets&period; In theory&comma; higher the current of the company better will be the liquidity position&period;<&sol;p>&NewLine;<blockquote>&NewLine;<p align&equals;"justify"><strong>Formula&colon;<&sol;strong><&sol;p>&NewLine;<p align&equals;"justify"><a href&equals;"http&colon;&sol;&sol;mba-tutorials&period;com&sol;&sol;wp-content&sol;uploads&sol;2010&sol;01&sol;image5&period;png"><img style&equals;"border-top-width&colon; 0px&semi; display&colon; inline&semi; border-left-width&colon; 0px&semi; border-bottom-width&colon; 0px&semi; border-right-width&colon; 0px" title&equals;"image" src&equals;"http&colon;&sol;&sol;mba-tutorials&period;com&sol;&sol;wp-content&sol;uploads&sol;2010&sol;01&sol;image&lowbar;thumb5&period;png" border&equals;"0" alt&equals;"image" width&equals;"225" height&equals;"43" &sol;><&sol;a><&sol;p>&NewLine;<&sol;blockquote>&NewLine;<p align&equals;"justify">Current ratio figure is calculated after dividing the company current assets with current liabilities of the company&period;<&sol;p>&NewLine;<p align&equals;"justify"><strong>Example&colon;<&sol;strong><&sol;p>&NewLine;<p align&equals;"justify">Let’s assume company ABC balance sheet contains currents assets of 10&comma;000 dollars and 5&comma;000 dollars current liabilities&period;<&sol;p>&NewLine;<blockquote>&NewLine;<p align&equals;"justify"><strong>Current Ratio &equals; <&sol;strong><strong>&dollar; 10&comma;000&sol;&dollar; 5000 &equals; 2&period;0<&sol;strong><&sol;p>&NewLine;<&sol;blockquote>&NewLine;<p align&equals;"justify"><strong>Analysis&colon;<&sol;strong><&sol;p>&NewLine;<&excl;-- WP QUADS Content Ad Plugin v&period; 2&period;0&period;95 -->&NewLine;<div class&equals;"quads-location quads-ad2" id&equals;"quads-ad2" style&equals;"float&colon;none&semi;margin&colon;0px 0 0px 0&semi;text-align&colon;center&semi;">&NewLine;&NewLine;<&sol;div>&NewLine;&NewLine;<p align&equals;"justify">The current ratio is a good tool to investigate company liquidity but sometimes it’s misleading&period; Higher current ratio is not necessarily mean better liquidity and lower current ratio is not necessarily bad liquidity&period; Current ratio focuses on amount of current assets and liabilities although the fact is that turning current assets to cash require time which varies company to company&period;<&sol;p>&NewLine;<p align&equals;"justify">Let compare two companies’ current ratios&period;&NewLine;<&excl;-- WP QUADS Content Ad Plugin v&period; 2&period;0&period;95 -->&NewLine;<div class&equals;"quads-location quads-ad3" id&equals;"quads-ad3" style&equals;"float&colon;none&semi;margin&colon;0px&semi;">&NewLine;&NewLine;<&sol;div>&NewLine;&NewLine;