A company should maintain a current ratio of two to one when
A)Estimating customer demand is difficult
B)The company grants little or no credit
C)The company is selling low priced clothing
D)Inventory turns over frequently
E)The company has little inventory

Question

Quizplus · Accepted Answer

A current ratio of two to one indicates that a company's current assets are twice its current liabilities. This suggests that the company has enough liquid assets to meet its short-term obligations. A company that grants little or no credit may have lower accounts receivable and therefore require less liquidity to meet its obligations, making a current ratio of two to one appropriate.

A Company Should Maintain a Current Ratio of Two to One