Which of the following statements regarding liquidity ratios is true?
A)A low current ratio generally indicates the ability to pay current liabilities on a timely basis.
B)A low acid-test ratio generally indicates the ability to pay current liabilities on a timely basis.
C)All current assets are due within one year and therefore have essentially equal liquidity.
D)A high working capital generally indicates the ability to pay current liabilities on a timely basis.

Question

Quizplus · Accepted Answer

A high working capital, which is the difference between current assets and current liabilities, indicates that a company has sufficient assets to cover its short-term liabilities, thus suggesting a good ability to pay off current debts in a timely manner.

Which of the Following Statements Regarding Liquidity Ratios Is True