A weakness of the current ratio is
A) the difficulty of the calculation.
B) that it doesn't take into account the composition of the current assets.
C) that it is rarely used by sophisticated analysts.
D) that it can be expressed as a percentage as a rate or as a proportion.

Question

Quizplus · Accepted Answer

The current ratio does not take into account the composition of current assets, which can vary significantly between companies. For example, if a company has a high proportion of inventory in their current assets, it may be difficult for them to turn that inventory into cash quickly, which could signal potential liquidity problems even if the current ratio appears strong.

A Weakness of the Current Ratio Is