Melton Corporation has a current ratio of 1.1. Sam has always been told that a corporations current

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Melton has a current ratio of 1.1. Sam has always been told that a corporation’s current ratio should exceed 2.0. Melton argues that its ratio is low because it has a minimal amount of inventory on hand so as to reduce operating costs. Melton also points out that it has significant available lines of credit. Is Sam still correct? What do some companies do to compensate for having fewer liquid assets?

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...

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Sam is not correct In order to reduce costs many companies today keep low amounts of inventory on hand Consequently liquidity ratios are generally lower than they used to be Companies that keep fewer liquid assets on hand frequently rely on a bank line of credit A line of credit allows a company to borrow money on a shortterm basis to meet any cash shortfalls caused by a low amount ...View the full answer

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