What might a high current ratio indicate?

A high current ratio indicates strong financial health and the ability to meet short-term obligations. The current ratio is calculated by dividing current assets by current liabilities. When this ratio is high, it suggests that the business has a sufficient amount of assets to cover its short-term liabilities, which can be reassuring for creditors and investors.

This signals that the company is in a strong position to handle its immediate financial obligations, reduce reliance on borrowing, and potentially invest in growth opportunities. A high current ratio can reflect effective management of working capital, where the business maintains a balance between its assets and liabilities.

Options suggesting potential liquidity issues, high levels of long-term debt, or increased investment in fixed assets do not directly relate to describing a high current ratio. The ratio specifically focuses on the relationship between current assets and current liabilities, demonstrating the company's ability to meet short-term financial commitments rather than longer-term financial strategies or concerns.