The current ratio
A)Helps to assess a company's ability to pay its debts in the near future.
B)Is current assets divided by current liabilities.
C)Is a measure of a company's liquidity.
D)Suggests there may be problems in a business if it is less than 1.
E)All of these answers are correct.

Question

Quizplus · Accepted Answer

All the options are correct. The current ratio is a widely used measure of a company's liquidity and ability to meet short-term obligations. It is calculated by dividing current assets by current liabilities. A ratio less than 1 suggests that the company may have difficulty meeting its short-term obligations, while a ratio greater than 1 indicates that the company has more current assets than current liabilities and is thus well-positioned to meet its obligations. Hence, the current ratio is an important tool to assess a company's ability to pay its debts in the near future.

The Current Ratio