Assume that a firm has total assets of $1,000,000 and current liabilities of $700,000. Eighty percent of the assets are current assets. An analyst reviewing this firm's current ratio would most likely conclude that the:

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The current ratio is calculated by dividing current assets by current liabilities. In this case, we can calculate current assets as 80% of total assets, which is $800,000. Therefore, the current ratio is 1.14 ($800,000 / $700,000). While this is not a particularly low current ratio, it is not extremely strong either. The analyst would likely conclude that the firm may experience some trouble paying its debts.

Assume That a Firm Has Total Assets of $1,000,000 and Current