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

Question

Quizplus · Accepted Answer

Current ratio is an important ratio that helps to assess a company's ability to pay its debts in the near future. It is calculated by dividing current assets by current liabilities. A higher current ratio indicates a better ability to pay off short-term obligations. A lower current ratio can reveal problems in a company if it is less than 1, which means that the company may struggle to cover its current liabilities. Current ratio can also affect a creditor's decision about whether to lend money to a company. However, current ratio does not directly affect a creditor's decision on when to allow a company to buy on credit.

All of the Following Regarding Current Ratio Are True Except