The Main Ratio Used by Many Financial Analysts to Examine

question 76

Essay

The main ratio used by many financial analysts to examine a company's short-term liquidity risk is the current ratio.However,there are a number of problems that arise when this ratio is used to examine short-term liquidity risk that may make the current ratio less useful than initially thought.Discuss the interpretative problems of using the current ratio.

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Definitions:

Low-Amperage Circuits

Electrical circuits designed to carry a small amount of electrical current, often for delicate electronic devices or low power applications.

Resistance

The opposition offered by a material or device to the flow of electrical current, measured in ohms.

Decrease

A reduction in size, quantity, or degree.

Increase

A rise in the quantity or value of something.