The relationship between current assets and current liabilities is important in evaluating a company's
A) profitability.
B) liquidity.
C) market value.
D) accounting cycle.

Question

Quizplus · Accepted Answer

The relationship between current assets and current liabilities is important in evaluating a company's liquidity. Current assets are assets that can easily be turned into cash within a year, while current liabilities are debts that must be paid within a year. If a company's current assets are significantly greater than its current liabilities, it suggests that the company has enough liquidity to cover its debts in the short-term. On the other hand, if a company's current liabilities are significantly greater than its current assets, it may struggle to meet its short-term financial obligations.

The Relationship Between Current Assets and Current Liabilities Is Important