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In: Operations Management

What does it mean when you have a 3:1 current ratio? Explain

What does it mean when you have a 3:1 current ratio? Explain

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Expert Solution

A 3:1 current ratio explains that the company's ability to pay its short term liabilities is 3 times.

Current ratio = Current Asset / Current liability

Current Asset = 3 x Current liability

This means that the firm's short term assets are three times the short term liabilities of the firm. This ratio is very healthy for a firm because it signifies the investors that the firm is very well able to pay its current debt and payables.

keosha answered 2 years ago
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