Current ratio offers insights into a company's liquidity and shortterm solvency from "summary" of The Interpretation of Financial Statements by Benjamin Graham,Spencer Meredith
The current ratio serves as a vital metric for assessing a firm's ability to meet its short-term obligations. It is calculated by dividing current assets by current liabilities. A ratio above 1 indicates that a company possesses more current assets than current liabilities, suggesting a favorable position to cover its immediate debts. Conversely, a ratio below 1 raises concerns about potential liquidity issues. This financial measure reflects not just the availability of cash but also the overall management of assets that can be readily converted into cash. Assets such as inventory, receivables, and cash equivalents are crucial in determining whether a company can maintain its operations without disruption. A healthy current ratio implies that a business can sustain itself during periods of cash flow...
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