Financial Analysis of Virtual and Real Companies
ZeroMillion.com, 2006, states
The Current Ratio is one of the best known measures of financial strength. It is figured as shown below:
Current Ratio = Total Current Assets / Total Current Liabilities
A generally acceptable current ratio is 2 to 1. But whether or not a specific ratio is satisfactory depends on the nature of the business and the characteristics of its current assets and liabilities. The minimum acceptable current ratio is obviously 1:1, but that relationship is usually playing it too close for comfort
Huffman Trucking and J B Hunt have a current ratio of 1:1 while Knight Transportation has a current ratio of 3.6:1. The current assets for Huffman Trucking and J B Hunt are almost the same as their current liabilities. Knight Transportation has current assets of $96,070 and current liabilities of $26,154. Knight should not experience any difficulty paying their obligations. Huffman Trucking and J B Hunt should look at other methods to increase their current assets or decrease their current liabilities.
I was unable to calculate the current ratio for McBride Financial because they do not have a balance sheet listed on their website. The current ratio for Countrywide Financial is 0.3:1; which is below the minimum acceptable of 1:1. The current liabilities for Countrywide Financial almost four times their current assets; they need to determine what is causing their short/current long-term debt and other current liabilities and find a way to decrease them. As a lender, they should know the importance of a strong current ratio is necessary when obtaining outside financing. The current ratio for Accredited Home Lenders is 0.5:1; which is below the acceptable minimum. Accredited Home Le ...