When comparing companies in the same industry but of different sizes, the current ratio is a better indicator of relative liquidity than net working capital.

Question

Quizplus · Accepted Answer

The current ratio, which is calculated as current assets divided by current liabilities, is a relative measure that provides a better comparison of liquidity across companies of different sizes within the same industry. Net working capital, which is calculated as current assets minus current liabilities, is an absolute number and does not account for the size of the company, making it less effective for comparative analysis.

When Comparing Companies in the Same Industry but of Different