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TREND ANALYSIS AND PREFERRED LEVEL OF THE CURRENT RATIO - EVIDENCE FROM CROATIA

Financial statement analysis has the purpose to assess the financial position and efficiency of business operations. Financial ratios represent an inevitable instrument for evaluating the ability of the company to meet its current liabilities, ability to generate sufficient amount of earnings and generally company’s creditworthiness. Drawing conclusions on business operations of a certain company is considered to be a complex process. Often, achieving high levels of financial ratios does not assume financial stability or efficiency of business operations, particularly in the context of a rapidly changing environment. In that context, among other relevant factors, comparing financial ratios to determined averages can improve the quality of conclusions. The paper includes trend analysis of current ratio for companies in Croatia in order to forecast its movements in the coming years. With the purpose to determine the most accurate predictions and preferred range, the current ratio is observed for a ten-year period, which is additionally divided on pre-recession and recession periods. The main objective of the paper is to determine the preferred level of the current ratio for companies operating in Croatia. For research purposes appropriate statistical methods are used (measures of descriptive statistics, analysis of variance, and regression analysis). In accordance with the results, the outcome of the paper should be intervals of current ratio that will ensure reliable conclusions on companies’ business operations efficiency, classifying them into four groups – bad, average, good, and excellent.

financial position, current ratio, trend analysis, preferred level

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