Suggest reasons why 2:1 current ratio might not be adequate for a particular company.

Question

Want to see the full answer?

Answer 1

Question

Chapter 17, Problem 5DQ

To determine

Suggest reasons why 2:1 current ratio might not be adequate for a particular company.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

There are various limitations to employing the PE Ratio for company to company comparisons. Describe several of the limitations. A better measure would be to employ the PEG Ratio, how would you calculate?

Ratio analyses may not be helpful in explaining the performance of the company. Explain the limitations of using ratio analyses in a company. Relevant examples or illustrations should be given.

Sargassum Caribbean Incorporated Balance Sheet as at December 31, 2020 Assets Liabilities Current Assets: Current Liabilities: Cash Accounts Payable 600,000 300,000 200,000 400,000 Notes Payable 900,000 1,500,000 Total Current Liabilities Accounts Receivable Inventory Total Current Assets 900,000 Fixed Assets: Long-Term Liabilities: Property, Plant & Equipment Less: Accumulated Depreciation 1,200,000 Long-Term Debt 1,000,000 Total Long Term Liabilities 200,000 300,000 300,000 Net Fixed Assets Owners' Equity: Common Stock ($1 Par) Capital Surplus Retained Earnings Total Owners' Equity 100,000 300,000 100,000 500,000 1,700,000 Total Liabilities & Owners' Equity Total Assets 1,700,000 Sargassum Caribbean Incorporated Income Statement for Year Ending December 31, 2020 Sales Less: Cost of Goods Sold Less: Administrative Expenses Less Depreciation Earnings Before Interest and 2,500,000 800,000 100,000 104,000 1,496,000 Тахes Less: Interest Expense Taxable Income 20.000 1,476,000 663,000…