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Which following ratio measures a firm's ability to pay current liabilities? Select one: a. Both a...

Which following ratio measures a firm's ability to pay current liabilities? Select one: a. Both a and b b. Acid-test ratio c. None of these d. The Juniper Ratio e. Current Ratio

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Answer #1

The ratio which expresses a firm's ability to pay current liabilities is current ratio.

Hence the answer for the above question is option "e".

Explanation:

Generally the term current liabilities infer a meaning that the obligations that the firm is having to be cleared with in a period of 12 months. However sometimes it might differ depending on the nature of business as well as the firm's operating cycle period. The ideal current ratio is considered as 2:1 . It means that company has two times of the money required to settle its current obligations. The higher current ratio shows that company has excess cash and its better to invest and lower current ratio tells that company does have required amount of current assets to pay off current liabilities.

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