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The Current Ratio

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Is it possible for the current ratio to be too high? Explain.

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This solution discusses the current ratio and its components in depth.

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It is both possible and possibly financially hazardous for the current ratio to be too high. The current ratio is the ratio of current assets to current liabilities. Current assets consist of assets such as cash, accounts receivable, inventory, and prepaid expenses. Current liabilities consist of debts such as accounts payable and accrued expenses.

If the current ratio is too high because the numerator ...

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