If management wishes to know the ability to pay off the current debts of a business,they could use the:
A)debt to total assets.
B)current ratio.
C)inventory turnover ratio.
D)times interest earned.

Question

Quizplus · Accepted Answer

The current ratio is the ratio of current assets to current liabilities, and it indicates the ability of a business to pay off its short-term debts. A higher current ratio means the business has more current assets to cover its current liabilities, which suggests a better ability to repay debts. Therefore, the current ratio is the best choice to evaluate the ability to pay off current debts.

If Management Wishes to Know the Ability to Pay Off