The Current ratio is primarily used to give an idea of the company's ability to pay back its short-term liabilities by using its short-term assets. If a company’s ratio is higher than 1 then the company is more capable of paying its obligations. However if the companies ratio is under 1 then that suggests that the company would be unable to pay off its obligations in under 12 months. Publix’s ratio shows that they are a company that is in good financial health and can quickly repay debts owed. Companies such as Walmart and Costco both have ratios below 1 (COST Balance Sheet); (WMT Balance Sheet) While this shows the company is not in good financial health, a ratio below 1 does not necessarily mean that the company is going bankrupt, because there are several other ways to acquire financing. If a company has a ratio of less than 1 they cannot pay off their current liabilities. As such, they should be looked at with great caution when investing etc. Furthermore, if the results for the acid-test ratio is much lower than the working capital ratio, it means current assets are highly dependent on inventory. Retail stores are examples of this type of business. The results of Publix ratio shows that they are in a position …show more content…
In the end this type of financing may result in volatile earnings as a result of the additional interest expense from the debts incurred. If a lot of debt is used to finance increased operations, then this company will have the potential to start to generate more earnings than it would have without this outside financing. It benefits the stock holders if the increased earnings outweigh the debt financing. However, if the cost of the debt financing outweighs the return, then that company find itself leading toward bankruptcy (yet not guaranteed to happen), this would leave shareholders with