Peak Performance Sporting Goods Company has just applied for a bank loan in order to expand the business. Using the most recent balance sheet data provided by the company owner, you calculate that the company's current ratio is 2.5. In your presentation to the company boss, you remark
A) Peak Performance is currently having trouble meeting its short-term obligations.
B) Peak Performance has $2.50 that it owes each month, for every $1.00 of cash that it is generating.
C) Peak Performance has $2.50 of current assets for each $1.00 of current liabilities.
D) Due to the fact that most of Peak Performance's current assets are tied up in inventory, there is no need to worry about whether Peak Performance will be able to make loan payments.

Question

Quizplus · Accepted Answer

The current ratio compares total current assets to total current liabilities. A current ratio of 2.5 can be written as a fraction: 2.5/1. This meExplanation: The firm has $2.50 worth of current assets for every $1.00 of current liabilities.

Peak Performance Sporting Goods Company Has Just Applied for a Bank