What is the importance of the current ratio in financial analysis?
An example of an AI chatbot conversation about the importance of the current ratio in finance.
What is the importance of the current ratio in financial analysis?
The current ratio measures a company's ability to pay short-term obligations. It's crucial for assessing liquidity.
How is the current ratio calculated?
The current ratio is calculated by dividing current assets by current liabilities. A ratio above 1 indicates good liquidity.
What does a low current ratio indicate?
A low current ratio may indicate potential liquidity problems, suggesting the company might struggle to meet its short-term debts.
What is considered a healthy current ratio?
Generally, a current ratio between 1.5 and 2 is considered healthy, but it can vary by industry.
Can the current ratio be misleading?
Yes, it can be misleading if a company has a lot of inventory or if current liabilities are due soon.
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