Notes On The Current Ratio

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The current ratio (CR) measures the extent to which an organization can transform assets into cash to meet short-term liabilities (p.3). FirstRate’s (FR) CR is trending down and is a low value indicating ratios lending risk ("Liquidity Ratio", n.d.). FR current ratio is still in"safe zone" as it exceeds 1 (p.6). The CR is the extent which current assets exceed current liabilities and so it is a measure of short-term ability to meet obligations (p.6). The acid-test (AT) ratio is a more exact measure to verify if FR has the ability meet short-term obligations through actual liquid assets ("Acid-test", 2003). The CR considers illiquid assets - the acid-test only considers liquid assets ("Acid-Test", 2003). FR AR ratio is not indicative of…show more content…
The higher the collection period the more risk an organization takes on. It may however work to attract more customers but this is a short-term fix. The longer a firm takes to sell inventory the higher their carrying costs are. Firms want to get inventory out in the shortest amount of time possible in order to liquidate them. FR 's average days to sell inventory in trending upward which is not value-added. This is also a metric which defines the "quality" of assets because firms need liquid assets- supply should come close to demand to increase liquidity. This ratio is similar to the turnover (TO) ratio. All of the liquidity ratios tell how well the decisions made by management are paying off. It’s not looking to good. th is a measure of how well manamaget is running the organzation. Improevemtns are needed. FR has an upward trending debt-to-equity (DTE) ratio which indicates that they are incurring too much debt "to finance… assets relative to the ... value represented in shareholders’ equity" (""Debt/Equity"", 2003). This is not a sustainable tactic. The upward trending DTE ratio is a risk which may indicate proximity to bankruptcy which lenders and investors will not find favorable ("Debt/Equity"", 2003) & p.6). FR has an upward trending debt-to-equity (DTE) ratio indicating that they are incurring too much debt "to finance… assets relative to the ... value represented in shareholders’ equity" ("Debt/Equity", 2003). This is not a sustainable tactic. FR 's DTE
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