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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....

Question Posted / random

Answer Posted / 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.

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