This figure makes sense only if you compare the current ratios of the same company over a period of time or if you compare the current ratio of different companies in the same type of business. The higher the current ratio, the better. A high current ratio does not guarantee that a company is a winner. It is only one of the indicators among many that can help tell you if the company is worth a second look. From this point of view, we will take a look at a few major items on a typical company balance sheet to see how the increase or decrease in balances helps or hurts the company.
Cash Cash is the money the company has on hand or in bank accounts.
In general, we consider an increase in cash to be a good thing because it can indicate that the company can better withstand hard times when things get difficult. An increase in accounts receivable is not necessarily good news. Recall that accounts receivable indicates the amount of money owed to the company by its customers. A high accounts receivable balance sounds like it might be a good thing until you discover that the company has already claimed that amount as part of its profit. Now, you can brag to your other friends that you sold the bike at a good price, but the fact that you have not yet received the money makes your claim questionable because you may never receive that money.