Which of the following statements regarding the current ratio is true?
A)The current ratio is calculated as the difference between current assets and current liabilities.
B)Other things being equal,the lower the current ratio,the more assurance creditors have about being paid in full and on time.
C)The current ratio is widely used to evaluate liquidity.
D)The main components of the current ratio are cash and property,plant,and equipment.
E)The comparison of a company's current ratio to the industry average is meaningless.

Question

Quizplus · Accepted Answer

The current ratio is calculated by dividing current assets by current liabilities and is used to evaluate a company's liquidity. It indicates a company's ability to pay off its short-term obligations using its current assets. A higher current ratio indicates better liquidity, while a lower current ratio indicates poorer liquidity. The comparison of a company's current ratio to the industry average can provide insight into the company's liquidity position relative to its peers. The other options are incorrect statements regarding the current ratio.

Which of the Following Statements Regarding the Current Ratio Is