The rule of thumb for evaluating current ratio is that the minimum acceptable ratio is
A)3.0.
B)2.0.
C)1.0.
D)4.0.

Question

Quizplus · Accepted Answer

The commonly acceptable minimum current ratio is 2.0. This indicates that the company has sufficient current assets to cover its current liabilities. However, it is important to note that the acceptable current ratio varies by industry and should be compared to industry standards. A ratio of 1.0 means that the company has exactly enough current assets to cover its current liabilities, which may indicate that there is little room for financial flexibility. A ratio of 3.0 or 4.0 may indicate that the company is keeping excessive amounts of inventory or cash, which can affect its profitability.

The Rule of Thumb for Evaluating Current Ratio Is That