The most important information needed to determine if companies can pay their current obligations is the
A) net income for this year.
B) projected net income for next year.
C) relationship between current assets and current liabilities.
D) relationship between short-term and non-current liabilities.

Question

Quizplus · Accepted Answer

The relationship between current assets (such as cash, accounts receivable, and inventory) and current liabilities (such as accounts payable and short-term loans) is a key indicator of a company's ability to pay its current obligations. This is because current assets are the resources that a company can use to satisfy its current liabilities. If a company's current assets are significantly greater than its current liabilities, it is generally considered to have a strong liquidity position and be able to meet its short-term obligations. On the other hand, if a company's current liabilities are significantly greater than its current assets, it may have difficulty meeting its short-term obligations and could potentially face financial distress. Net income and projected net income are important indicators of a company's profitability, but do not necessarily provide insight into its ability to pay its current obligations. The relationship between short-term and non-current liabilities is also important, but not as directly relevant to determining a company's ability to pay its current obligations.

The Most Important Information Needed to Determine If Companies Can