Which statement concerning the current (working capital) ratio is incorrect?
A) A low current ratio may indicate difficulty in meeting short-term commitments.
B) The current ratio can be manipulated at balance date,
C) A high current ratio may indicate excessive investment in working capital.
D) A current ratio of $1.50 of current assets for each $1 of current liabilities should always be maintained.
E)g. by using cash to pay off short-term debt.

Question

Quizplus · Accepted Answer

The statement "A current ratio of $1.50 of current assets for each $1 of current liabilities should always be maintained" is incorrect. While it is generally desirable to have a current ratio above 1, there is no specific number that must always be maintained. The appropriate current ratio will vary depending on the industry, the specific company, and the economic environment.

Which Statement Concerning the Current (Working Capital) Ratio Is Incorrect