A higher ________ implies less risk of the firm experiencing a cash shortfall in the near future.
A) return on asset ratio
B) market-to-book ratio
C) current ratio
D) return on equity ratio

Question

Quizplus · Accepted Answer

The current ratio measures a firm's ability to pay off its current liabilities with its current assets. A higher current ratio indicates that the firm has more current assets relative to its current liabilities, which implies that it is better positioned to meet its short-term obligations and less likely to experience a cash shortfall in the near future. The other ratios listed (return on asset, market-to-book, and return on equity) do not directly measure a firm's liquidity or ability to meet short-term obligations.

A Higher ________ Implies Less Risk of the Firm Experiencing