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Financial ratios: why current ratio changes

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The typical current ratio is 2 to 1. What situations would cause it to be lower with no real risk to operations? Can it ever be under 1 to 1?

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Solution Summary

This 350 word solution provides a comprehensive view of reasons why there are changes in the current ratio and the consequences of such changes. Real world examples are given to provide insight and understanding.

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I suspect that in the real world, a 2:1 working capital ratio is more ideal than typical, but I thought I would test that statement using Yahoo Finance. The results are interesting:

Archer Daniels Midland is 1.92
Microsoft is 2.18
Caterpillar is 1.15
General Electric is .39
Goldman Sachs is .45
Google is 9.995 (out of sight!)

What situations would cause it to be lower with no real risk to operations? Lowering the amount of current assets in relation to current liabilities would decrease the current ratio. The following ...

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