What does it mean that the current ratio is lower than 2 and decreases year by year?

It shows that the short-term solvency of the enterprise is poor, the liabilities are increasing year by year, the inventory backlog exceeds the normal value, and the liquidity of funds is poor, which proves that the operation ability is poor and the company faces certain risks.

The current ratio is used to measure the ability of an enterprise to convert its current assets into cash to repay its liabilities before the short-term debt expires. Generally speaking, the reasonable minimum flow ratio is 2.

The higher the current ratio, the greater the liquidity of enterprise assets, but the excessive ratio indicates that the current assets occupy more, which will affect the turnover efficiency and profitability of working capital.

Extended data

Another related concept is quick ratio QR, which is also a measure of the ability of an enterprise to immediately realize its current assets to repay its current liabilities. QR= quick assets/current liabilities * 100%, in which quick assets include monetary funds, short-term investments, notes receivable, accounts receivable and other receivables that can be realized in a short time.

When calculating quick ratio, because the inventory is slowly realized in current assets, it should be deducted from current assets, and some inventory may be unsalable and cannot be realized.

Traditional experience holds that it is normal to keep the quick ratio of 65,438+0: 65,438+0, which indicates that every 65,438+0 yuan's current liabilities are offset by 65,438+0 yuan's easy-to-realize current assets, and the short-term solvency is reliably guaranteed. If the quick ratio is too low, the short-term debt risk of the enterprise is high, and the quick ratio is too high, the enterprise will occupy too much money on the quick assets and increase the opportunity cost of enterprise investment.

In practical work, we should take into account the industry nature of enterprises. For example, in the commodity retail industry, due to a large amount of cash sales, there are almost no accounts receivable, and the quick ratio is much lower than 1, which is also reasonable.

On the contrary, although the quick ratio of some enterprises is greater than 1, most quick assets are accounts receivable, which does not mean that enterprises have strong solvency, because there is great uncertainty about whether accounts receivable can be recovered. Therefore, when evaluating quick ratio, we should also analyze the quality of accounts receivable.

Baidu encyclopedia-current ratio