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    Question

    What is the current ratio preferred by banks while

    financing any working capital?
    A 0.5 Correct Answer Incorrect Answer
    B 1.00 Correct Answer Incorrect Answer
    C 1.33 Correct Answer Incorrect Answer
    D 1.80 Correct Answer Incorrect Answer
    E 3.00 Correct Answer Incorrect Answer

    Solution

    Current ratio denotes the availability of liquid assets to meet short-term liabilities. Current ratio of 1.33 (100/75) means 75% of the current assets are funded through current liabilities (including bank’s working capital loans) and rest 25% is funded by the owner. A high current ratio like 1.8 or 3.00 in the options above is not desirable in most of the businesses; it can be a sign of problems in managing working capital.

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