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Printing & Packaging Industry Financial Ratios

Current Ratio : Liquidity & Activity Ratio

Formula: (Current Assets / Current Liabilities) x 100

The current ratio compares all of a company's current assets to its current liabilities. These are usually defined as assets that are cash or will be turned into cash in a year or less, and liabilities that will be paid in a year or less. The current ratio is sometimes referred to as the "working capital" ratio and helps investors understand more about a company's ability to cover its short-term debt with its current assets. The current ratio tells you the percentage of 2020's debts that you can pay off with liquid assets. Instead of seeing current assets in a vacuum, you can see how the level of current assets compares to the level of current liabilities.

Current Ratio is a measure of a firm's ability to meet its financial obligations. It also shows short-term solvency and provides an indicator as to how well short-term creditors are covered by assets that are expected to be converted into cash in a period roughly corresponding to the maturity of the claims. Essentially, it means that for every dollar of current liabilities you have a corresponding dollar amount of current assets.

An acceptable current ratio for the printing industry is between 1 and 1.5. A ratio value lower than 1 may indicate your firm may have cash difficulties. Many financial professionals recommend striving for a multiple of 2.00 (2 to 1). This means that for every dollar of current liabilities you will have $2 of current assets to cover them. The higher the amount, the safer your financial position is. The higher the ratio, the more flexibility there is between debt obligations and the availability of the assets to pay them.
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