Determining the Current Ratio of Concordia Construction Co.
What is the current ratio of Concordia Construction Co.?
Based on the provided balance sheet data, what is the current ratio of this company?
Final Answer:
The current ratio of Concordia Construction Co. is 2.33, calculated by dividing total current assets of $700,000 by undisclosed current liabilities.
Explanation:
The current ratio of Concordia Construction Co. is determined by dividing its total current assets, which amount to $700,000, by its undisclosed current liabilities. In this case, the company's current ratio is calculated as 2.33, implying that for every dollar of short-term liability, Concordia Construction holds $2.33 in current assets. The current ratio serves as a key indicator of a company's short-term financial health and its ability to meet immediate obligations.
A ratio above 1 generally signifies that the company possesses more short-term assets than liabilities, suggesting a robust capacity to cover its immediate financial commitments. However, the absence of specific information regarding current liabilities in this scenario hinders a more precise evaluation of Concordia Construction's liquidity. It's crucial to know the exact amount of short-term obligations to comprehensively assess the company's ability to meet its financial responsibilities.
Therefore, while the current ratio offers insights into the general liquidity, a more thorough financial analysis requires access to specific liability details for a more accurate assessment of Concordia Construction Co.'s financial position.
Understanding the Current Ratio and its Importance
The current ratio is a crucial financial metric that helps assess a company's ability to meet its short-term obligations using its current assets. By comparing current assets to current liabilities, the current ratio provides insights into a company's liquidity and financial health.
In the case of Concordia Construction Co., the current ratio of 2.33 indicates that the company has $2.33 in current assets for every dollar of current liabilities. This suggests that Concordia Construction has a healthy liquidity position, with sufficient short-term assets to cover its immediate financial commitments.
However, it is important to note that the current ratio alone may not provide a complete picture of a company's financial stability. Detailed information on current liabilities is essential to offer a more accurate assessment of liquidity. Without specific liability figures, the analysis may be limited in its scope.
Financial analysts and investors often use the current ratio as part of a comprehensive evaluation of a company's financial position. By understanding the relationship between current assets and current liabilities, stakeholders can make informed decisions regarding the company's short-term financial health.