A rule of thumb in financial analysis is that a current ratio of 2 is ade- quate. a. If this

A rule of thumb in financial analysis is that a current ratio of 2 is ade- quate.

a. If this is so, how much could a firm’s current assets shrink and still be sufficient to satisfy current obligations?

b. Explain how a current ratio of 2 may be inadequate to meet cur- rent obligations.

c. Explain how a current ratio of 2 may be more than sufficient to meet current obligations.