Business – 10.2 Analysis of published accounts – Liquidity ratios | e-Consult
10.2 Analysis of published accounts – Liquidity ratios (1 questions)
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Answer:
- Total Current Assets = 30,000 + 45,000 + 25,000 = £100,000.
- Total Current Liabilities = 50,000 + 30,000 = £80,000.
- Current Ratio = £100,000 ÷ £80,000 = 1.25.
- If the ratio were below 1 (e.g., 0.9), it would indicate that current assets are insufficient to cover current liabilities, signalling potential liquidity problems. Creditors might demand stricter terms, and investors could view the firm as higher risk.