Because your company's current ratio is between 1:1 and 2:1, your company probably has enough assets that can be converted into cash to pay its bills. Note that a current ratio between 1.8:1 and 2:1 is common for distributors. The ratio is generally this high because gross margins are high and inventory is sold fairly rapidly.
Before going any further, you should: (1) make sure you have included all your liabilities; (2) make sure you have not included any long-term assets (property, plant, equipment, and so forth) in your current assets; and (3) satisfy yourself that your inventory is still worth the value shown in the general ledger -- that it is current, salable, and can be sold for at least as much as its value on your books.
Who's Watching:
See the Definition for a discussion of other parties that are interested in your current ratio.
Actions:
You should review the quality of your current assets. Make sure that all of your accounts receivable are really collectable. Review the accounts receivable aging and deduct any receivables that are unlikely to be paid.
Look over your inventory. Is everything in inventory salable? Are selling prices in your industry as high as they were when the inventory was purchased? Is all of the inventory current in terms of style, seasons, and so forth? If the answer is "no" to any of these questions, then your current ratio may not be as high as it appears and you should consider lowering the value of your inventory.
