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 long-term liabilities.

Question

Quizplus · Accepted Answer

The relationship between current assets and current liabilities is known as the current ratio, which is a key indicator of a company's ability to pay its current obligations. A ratio of less than 1 indicates that the company may have difficulty meeting its current obligations, while a ratio of more than 2 may suggest that the company is not using its current assets efficiently. Net income and projected net income do not provide information on a company's ability to pay its current obligations, and the relationship between short-term and long-term liabilities is important for assessing a company's long-term solvency, but not its ability to pay its current obligations.

The Most Important Information Needed to Determine If Companies Can