Which of the following statements about the current ratio is most appropriate?
A) A current ratio less than 1.0 is always unacceptable.
B) A current ratio greater than 2.0 is normal.
C) The determination of whether a current ratio is acceptable is best made by reference to industry norms.
D) A current ratio greater than 1.0 is always acceptable.

Question

Quizplus · Accepted Answer

The current ratio varies by industry and company, so it is best to compare a company's current ratio to industry norms. A current ratio less than 1.0 may not necessarily be unacceptable, as it could indicate that a company has short-term liquidity issues but could still be a viable company in the long-term. A current ratio greater than 2.0 may not necessarily be normal, as it could indicate that a company is holding excess cash and not utilizing it efficiently. A current ratio greater than 1.0 is not always acceptable, as it depends on various factors such as the company's industry, size, and business model.

Which of the Following Statements About the Current Ratio Is