why current ratio is 2:1.why it is not 100:1,10:1,20:1 in
current ratio. please tell me....
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Answer / chittibabu
if the current ratio is 2:1, company position is good. it
says that company consist of 2 assets for each liability to
clear its debts. if current ration is like 100:1,10:1,20:1
tells that over assets hold by the company. its not good at
all. then company has to face the problems.
| Is This Answer Correct ? | 22 Yes | 0 No |
Answer / vijayender
Current ratios shows the relationship between current
assets and current liabilities. Ideally, this ratio should
be 2:1 because it shows that the level of current asstes is
twice the level of current liabilities and comapny is
solvent and it has enough cash or resources to care of
short term obligations.
Secondly, why it is not 10:1 or 100:1 is simply that if the
ratio is high than it would imply that the funds of the
company are unnecessarily blocked in the current assets
which can be used elsewhere to earn income. So, current
assets level should neither be too high nor too low.
| Is This Answer Correct ? | 20 Yes | 0 No |
Answer / jayakumar
Because Working Capital measurment purpose if the company
current ratio is 2:1 financial performance is very good
| Is This Answer Correct ? | 8 Yes | 1 No |
Answer / shivani jhamb
Current ration shows the relationship between current
assets & current liablities. ideal current ratio is 2:1,
its shows that the compay is having 2 assets(enough cash)
to fullfill the each liablity. If current assets is more
than 2:1 then its shows that the funds are unnecessarily
blocked in the current assets,It affects the profitability
of the organisation.
| Is This Answer Correct ? | 7 Yes | 0 No |
Answer / guest
current ratio is 2;1, An indication of a company's ability to
meet short-term debt obligations; the higher the ratio, the
more liquid the company is. Current ratio is equal to current
assets divided by current liabilities. If the current assets
of a company are more than twice the current liabilities, then
that company is generally considered to have good short-term
financial strength. If current liablities exceed current
assets, then the company may have problems meeting its short-
term obligations
| Is This Answer Correct ? | 4 Yes | 0 No |
Answer / random
The reason companies do not want to have current ratios which are too high is because it would mean current assets are not being used efficiently to generate positive cash flows in the future. A ratio of 100 to 1 is hardly ever heard of because it means the company has an overwhelming amount of cash and cash equivalents, but it is not investing in any projects which would be profitable in the future. Holding substantial amounts of cash would lead to great opportunity costs due to not investing in projects that otherwise would be profitable for the company.
| Is This Answer Correct ? | 2 Yes | 0 No |
Answer / tata rao pl
Current Ration is 2:1 that company is working capital &
performance is good but not measure in 100:1,10:1& 20:1
| Is This Answer Correct ? | 3 Yes | 2 No |
Answer / surya
2:1 is debts to assets are 2:1, in other words debts are
two times higher than assets (Current). In commen business
sence this is a good financial proposition.
| Is This Answer Correct ? | 0 Yes | 6 No |
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