Which of the following statements is true?
A)A current ratio of 1.2 to 1 indicates that a company's current assets are less than its current liabilities.
B)All companies, regardless of size, should have a current ratio of at least 2:1.
C)The current ratio is a more dependable indicator of liquidity than working capital.
D)The use of the current ratio does not make it possible to compare companies of different sizes.

Question

Quizplus · Accepted Answer

The current ratio, which compares a company's current assets to its current liabilities, is a widely used measure of liquidity. It provides a snapshot of a firm's ability to meet its short-term obligations, making it a more dependable indicator of liquidity than working capital alone, which is simply the difference between current assets and current liabilities without considering the proportion.

Which of the Following Statements Is True