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Topic: Research and Describe Current Ratio and ROE
Provide a half page response to each of the following questions. Cite two sources (APA) for each question and indicate for which question the source was used. No Title Page required
Explain what it means for a firm to have a current ratio equal to .50. Would the firm be better off if the current ratio were 1.50? What if it were 15.0? Explain your answers.
Why is the Du Pont identity a valuable tool for analyzing the performance of a firm? Discuss the types of information it reveals compared to ROE considered by itself.
Current Ratio and ROE
current ratio of .50.
The current ratio is the total current assets divided by the total current liabilities, and the ratio indicates the ability of a company to pay the short term liabilities using the short term assets. A current ratio of 0.5 indicates that the current liabilities are twice as large as the current liabilities. The current ratio is unacceptable as there is a risk of the company facing difficulties meeting obligations because of liquidity problems. The working capital in this case would be negative as the current liabilities are higher than the current assets, and the company has to cover the current debt (E