Which of the following ratios is a measure of a company's ability to pay liabilities with current assets?
A)The days' sales in receivables
B)The price/earnings ratio
C)The inventory turnover ratio
D)The current ratio

Question

Quizplus · Accepted Answer

The current ratio measures a company's ability to pay its liabilities with its current assets. It is calculated by dividing current assets by current liabilities. A high current ratio indicates that a company has enough current assets to pay its current liabilities, while a low current ratio indicates that a company may have difficulty paying its current liabilities. Choice A (days' sales in receivables) measures the average time it takes a company to collect payment from its customers. Choice B (price/earnings ratio) measures the price of a company's stock relative to its earnings per share. Choice C (inventory turnover ratio) measures the number of times a company sells and replaces its inventory during a period.

Which of the Following Ratios Is a Measure of a Company's