A current ratio of less than one is not so much of a concern when the company has a:
A)low fixed asset turnover ratio.
B)high days to collect number.
C)high inventory turnover ratio.
D)all of the answers are acceptable.

Question

Quizplus · Accepted Answer

A high inventory turnover ratio indicates that a company is efficiently selling its inventory, which can offset a current ratio that is less than one. This is because there is confidence that the company will continue to generate cash through the sale of inventory, which can be used to pay off current liabilities. On the other hand, a low fixed asset turnover ratio or high days to collect number may indicate that a company is not utilizing its assets effectively or experiencing difficulty collecting receivables, respectively, which can exacerbate the impact of a low current ratio.

A Current Ratio of Less Than One Is Not So