Analysis of financial statements: current ratio Instructions:

1. Read the situation presented below and participate in the forum by answering as requested.

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

2. Answer the following question:

• Why do you think the bank felt that the current rate of less than 2 was not appropriate? What other factors might be considered when evaluating a running rate of less than 2 as appropriate?

3. When developing your answer, explain what a company's current ratio measures and its importance for effective financial planning.