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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 Posted / 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.
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