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How does high current ratio of a business affect a loan approval?
Wiki User
∙ 14y ago
High current ratio indicates your company's ability to pay loans if granted. The ratio is obtained by dividing assets by liabilities. A ratio of 1 or higher means your company has high liquidity to pay off debts.
Dama
Wiki User
∙ 14y ago
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A high current ratio suggests that the firm?
A current ratio is a way of measuring liquidity in a business, or to put it in simpler terms how quickly a firm can raise cash to pay off debts in a crisis. This current ratio is based on current assets (things a business owns and will sell within 1 year) and current liabilities (things a business owes like debts and will pay off in 1 year). The ratio is calculated using the formula: Current Assets _____________ Current Liabilities For example 150 / 100 would give 1.5:1 This ratio speaks to the accountant - it tells them if the business can meet its short-term liabilities (debts), or can it pay the suppliers so that they will continue to send stock to the shop (for example). In very simple terms the business has 1.5 times the amount needed to pay the debts - this is good. An ideal would be between 1.5 and 2. So your business has a current ratio of 7:1 oh dear. You can pay your debts (this is good) but your business has lots of cash sitting about that could be: 1) invested in new stock lines 2) Spent on advertising to drive up sales 3) invested in more experienced staff to help ensure the long term health of the business This tells and potential investor that your business is flabby with cash and not being managed well. Any potential investor may steer well clear.
Banks current ratio should be how much?
The ideal current ratio for banks 1.33 : 1
300000 current assets 100000 current liabilities and inventory of 150000 what is the acid test ratio?
acid test ratio = quick assets / current liabilitiesacid test ratio = 150000 / 100000acid test ratio = 150 %
What are the advantage and disadvantages business ratio?
ratio analysis
A quick ratio much smaller than the current ratio reflects?
a large portion of current assets is in inventory
Is 1.26 current ratio good?
It depends on the nature of business as well as the capital intensity of the business if business is capital intensive the high current ratio required otherwise it is not required to maintain high current ratio
What is current liabilities to total assets ratio?
Current liabilities to total assets ratio is the comparison between total assets in business with current liabilities in business.
Current ratio and liquidity ratio are same?
no they are not the same. the current ratio is current assets/current liabilities. but liquidity ratio or acid test ratio is current assets - stock/current liabilities. liquidity ratio shows you how able a business is to pay off its debt when stock is taken out of the equation.
What is current assets to total assets ratio?
Current asset to total asset ratio shows how much is the proportion of current asset with comparison to total assets of business.
What are the ratios in liquidity?
liquidity ratios include current ratio (which is current assets/current liabilities) and acid test (which is current assets- stock/current liabilities.) liquidity ratio's shows how good a business is a paying off its debts. hope this helps.
How do you get a current ratio?
Formula for current ratio is as follows: Current ratio = Current assets / current liabilities
Why is the quick ratio a more appropriate measure of liquidity than the current ratio for a large-airplane manufacturer?
The quick ratio is more appropriate than the current ratio because it only factors in the assets that a business, like a large airplane manufacturer, can easily turn into cash. The quick ratio does not include inventory or land assets so is typically lower than the current ratio.
What is a measure of liquidity?
the two ratios that measure liquidity is acid test and current ratio. the acid test ratio is current assets- stock/ current liabilities the current ratio is current assets/ current liabilities
An example of liquidity ratio is the?
current ratio and acid test ratio are examples of liquidity ratios'. current ratio is current asset's/ current liabilities. acid test ratio is current assets- stock / current liabilities.
The ratio of current assets to current liabilities is called the?
The ratio between current assets to current liability is called "Current Ratio".
What is the equation for current ratio?
Current Ratio = Current Assets / Current Liabilities
What is the formula for current ratio?
current ratio = current asset divided by current liability
