Assess short-term liquidity by looking at firm current ratio

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Reference no: EM131065593

Assume XYZ Corp. had a current ratio of 12.5 You are the CFO of XYZ Corp. Would you argue the high current ratio is good or bad? Why?

Ratios provide us with the ability to quickly assess a particular item. We can quickly assess short-term liquidity by looking at a firm's current ratio. We can quickly assess a firms capital structure by looking at a firm's debt to equity ratio. So ratios provide excellent and quick information. That said, why would relying on one ratio likely lead to an inaccurate conclusion about a particular company?

Reference no: EM131065593

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