The step two consists of ascertaining if the company has passed the test.For the sake of this explanation, let's call that difference (Current Asset - Current Liabilities) delta.
If delta is positive or strictly superior to zero then the company has passed the google financial test. On the other hand, if delta is negative or strictly inferior to zero then that company has failed the Google finance acid test.In real terms, a company that has a far greater current asset than current liabilities has passed the test. The higher the current asset in comparison to the current liabilities the better. The bigger the Delta, the better. Alright.
It is similar to an individual who has to pay its monthly credit cards bills. Alright. If he or she has a lot money far superior to the amount due, he or she is not under pressure at all. All is good.
On the other hand, imagine another person that has only $800, but has to pay $700 monthly bill. How is he or she going to survive on $100 in Texas for example before the month ends? That person is under pressure or financially squeezed. Right?
Unless the creditors offer him or her a friendlier arrangement, he or she will struggle. Have you ever "been broke" financially? Alright you get the picture.
Therefore, if a company has a far greater current liabilities than current assets then it is likely to be under pressure to pay its short term debt unless a deal is sorted out quickly with the creditors. Either way, it is not a typical bullish candidate that an investor or trader will consider.
Believe it or not, most bullish fundamental traders will stay away from that financial instrument, unless they are taking a calculated risk.