The relationship between current assets and current liabilities is important in evaluating a company's
A) fair value.
B) liquidity.
C) solvency.
D) profitability.

Question

Quizplus · Accepted Answer

The relationship between current assets and current liabilities is important in evaluating a company's liquidity, which means the ability of a company to meet its short-term obligations. If a company has more current assets than current liabilities, it suggests that the company has enough liquid resources to pay off its debts in the short term. On the other hand, if a company has more current liabilities than current assets, it may face difficulties in meeting its short-term obligations, which could lead to insolvency. Therefore, the relationship between current assets and current liabilities is a critical indicator of a company's ability to manage its short-term financial obligations.

The Relationship Between Current Assets and Current Liabilities Is Important