For the most recent year, a company's current ratio was significantly lower than its industry average. What is the best possible explanation for this situation?
A)The company's competitors were profitable.
B)The company's liquidity has improved.
C)The company has less equity than the rest of the industry.
D)The company's liquidity is worse than the rest of the industry.

Question

Quizplus · Accepted Answer

The current ratio measures a company's ability to pay its short-term liabilities with its current assets. A lower current ratio indicates that the company may have difficulty meeting its short-term obligations. Therefore, the best explanation for the company's current ratio being significantly lower than its industry average is that its liquidity is worse than the rest of the industry.

For the Most Recent Year, a Company's Current Ratio Was