All of the following regarding the current ratio are true except:
A) Current ratio is calculated by dividing current assets by current liabilities.
B) Current ratio can reveal challenges in covering short-term obligations if it is less than 1.
C) Current ratio can affect a creditor's decision about whether to lend money to a company.
D) Current ratio does not affect a creditor's decision on whether to allow a company to buy on credit.
E) Current ratio helps to assess a company's ability to pay its debts in the near future.

Question

Quizplus · Accepted Answer

The statement that "Current ratio does not affect a creditor's decision on whether to allow a company to buy on credit" is false. A low current ratio may indicate a higher risk of default on future payments, which may make a creditor less likely to extend credit to the company. Therefore, all the other statements are true about the current ratio.

All of the Following Regarding the Current Ratio Are True