Question

Given the current ratio (…%) is decreased by the APRA, what effect would this have on the profitability of the banks and credit rating of the Banks/Australia?

Answer 1

CURRENT RATIO is liquidity ratio, which shows the strength of a firm to pay its short term liability(current liabilities) by shorterm assets (current assets). Cash is the most liquid form of asset.

formula : current assets / current liability.

Financial ratios are widely used to analyze a bank's performance, specifically to gauge and benchmark the bank's level of solvency and liquidity. A financial ratio is a relative magnitude of two financial variables taken from a business's financial statements, such as sales, assets, investments and share price. Bank financial ratios can be used by the bank's clients, partners, investors, regulators or other interested parties.

So a balanced ratio should be maintained inorder for a smooth working of a bank. In banks most of the transactions are on short term basis. So it is very essential for banks to maintain a proper level of current ratio. customer withdrawals, checks, payment of interest etc are to be made on regular basis. To make this payments Banks should need sufficient level of cash or current assets. If any fall in any functioning of banks, it will make an impact in customers and on society. As we say Customers are the Kings. So the Banks should satisfy the customers with their services.