Which of the following statements is an accurate interpretation of the current ratio?
A) A current ratio of 1.5 or higher is considered a high-risk ratio.
B) A current ratio below 1.00 is considered a good and safe ratio.
C) A current ratio of 2.0 indicates a strong ability to pay current liabilities.
D) A current ratio of 0.60 or lower is a good and safe ratio.

Question

Quizplus · Accepted Answer

A current ratio of 2.0 indicates a company has twice as many current assets as current liabilities, which is generally considered a strong ability to pay current liabilities. Option A is incorrect because a current ratio of 1.5 or higher is generally considered a safe ratio. Option B is incorrect because a current ratio below 1.00 may indicate that a company has more current liabilities than current assets and may have difficulty paying its short-term obligations. Option D is also incorrect because a current ratio of 0.60 or lower is generally considered a low ratio and may indicate financial difficulty for a company.

Which of the Following Statements Is an Accurate Interpretation of the Current