A company has no prepayments and has a current ratio of 0.98:1 and a quick ratio of 0.95:1. This indicates that the company cannot pay its debts if called upon to do so.

Question

Quizplus · Accepted Answer

The current and quick ratios below 1 do indicate that the company's liquid assets are less than its current liabilities, but this does not necessarily mean the company cannot pay its debts if called upon to do so, as it might have access to other sources of cash or the ability to quickly convert assets to cash.

A Company Has No Prepayments and Has a Current Ratio