What are Common Size Statements ?
February 12, 2025
Traditionally, the commercial banking industry was largely controlled by commercial banks which had a huge brick-and-mortar presence. However, over the past few decades, customers have gone digital. In response to that, the banks were also compelled to go digital. This digital wave led to a dramatic increase in competition for commercial banks. Many types of […]
In the previous article, we studied about exchange traded derivatives. We studied their defining features and found out the reason behind their popularity. However, exchange traded derivatives are of many types. They are traded all over the world in different stock exchanges. Hence, there are many different types of exchange traded derivatives. In this article, […]
Globalization has led to increased competition. Artificial boundaries no longer stop competitors from entering markets and even dominating them. This is the reason that having a distinct and clear competitive advantage has become important for most organizations. However, a lot of companies do not have this competitive advantage. This is because competitive advantages do not […]
The activities of most investors have historically been limited to their home country. This is largely because earlier, there were rules which made the transfer of capital between countries an arduous process. Not only was the process complex, but it also took a lot of time and was riddled with transaction costs. This is the […]
In the previous article, we have already seen that building stadiums where professional sports franchises operate is a very expensive and complex task. We have also seen that it is not profitable either for the private entity or the government entity to build such stadiums on their own. In such cases, the public-private partnership (PPP) […]
The current ratio is the most popularly used metric to gauge the short term solvency of a company. This article provides the details about this ratio.
Current Ratio = Current Assets / Current Liabilities
Current ratio measures the current assets of the company in comparison to its current liabilities. This means that the firm expects to collect cash from the people that owe it money and pay to the ones that they owe money to on time. Hence if the current ratio is 1.2:1, then for every 1 dollar that the firm owes its creditors, it is owed 1.2 by its debtors.
The ideal current ratio is 2 meaning that for every 1 dollar in current liabilities, the company must have 2 in current assets. However, this varies widely based on the industry in which the company is functioning.
The current ratio makes two very important assumptions. They are as follows:
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