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TCB financial reviewed by lending bank: Issues

Upon reviewing the audited statements submitted by TCB, the lending bank noted that the current ratio for the company of 4:1 is too high. Please explain the bank's remark to the exasperated management. What is the industry standard for current ratio? Is high current ratio healthy?

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The Current Ratio

Expressed as a comparison between a firm's current assets to its current liabilities, the current ratio is a commonly used financial ratio that is used to determine whether or not a firm has enough resources to pay its short-term debt obligations (under 12 months).

Current Ratio = Current Assets / Current Liabilities

For example, if a firm's current assets are $80,000,000 and its current liabilities are $30,000,000, then the firm's current ratio ...

Solution Summary

Upon reviewing the audited statements submitted by TCB, the lending bank noted that the current ratio for the company of 4:1 is too high. Please explain the bank's remark to the exasperated management. What is the industry standard for current ratio? Is high current ratio healthy?

$2.19