The primary weakness of the current ratio is
A)it is difficult to calculate
B)it includes some items, such as inventory, that may not be readily liquid
C)it requires many years of past data
D)it includes many non-current items in its calculation

Question

Quizplus · Accepted Answer

The current ratio is calculated by dividing current assets by current liabilities. However, current assets may include items that are not easily liquid, such as inventory. This means that the current ratio may overstate a company's ability to meet its short-term obligations in a timely manner.

The Primary Weakness of the Current Ratio Is