Analysis of financial statements: current rate

Read the situation presented below

The ABX company applied for a line of credit to finance the production operations of a new article. The bank denied the request because in its analysis of the financial statements the current ratio was less than 2.

Answer the following questions:

a. Why do you think the bank considered that the current rate less than 2 was not adequate?

b. What other factors could be considered when evaluating a current rate less than 2 as adequate?

c. Explain what the current rate of a company measures and its importance for effective financial planning.