If the only information you were given about Ryan Corporation, a large public company in business for many years, was that had a current ratio of 2.9, what could you determine from this?
A) Nothing, you would also need Ryan Corporation's current ratios from the last few years and the current ratio's from the last few years of Ryan's competitors.
B) You could determine that Ryan has a liquidity problem because Ryan's current ratio is greater than 2 which is the rule of thumb for the current ratio.
C) Nothing, you would also need the current ratio's from the last few years of the S&P 500 Index.
D) You could determine that Ryan has an activity problem because Ryan's current ratio is greater than 2 which is the rule of thumb for the current ratio.

Question

Quizplus · Accepted Answer

The current ratio alone does not provide enough information to determine the financial health of a company. It is necessary to compare the current ratio of Ryan Corporation with the current ratio of its competitors and its trend over the last few years to get a better understanding of the company's financial health. Therefore, choice B, C, and D are incorrect.

If the Only Information You Were Given About Ryan Corporation