As it has been anticipated, the liquidity ratios has the goal to identify a company's ability to satisfy maturing short-term debts which are accounted in the current liabilities. It is crucial to understand the meaning of the current ratio by keeping in mind that too much liquidity is not good because excessive cash balance means that the company has a lower rate of returns.
The current ratio, is a liquidity ratio that measures in percentage terms the company's ability to pay short term debts (current liabilities including accruals) from resources available in the short term (current assets including accruals and accrued income).
The current ratio, can be used as a warning indicator and as a seafty margin for short-term creditors of the company. Indeed it is a measure that makes sense for creditors in fact it has been used in the most of ratings used by International reating Agencies like JP Morgan, Moody's.
Let's see what the current ratio has inside:
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