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Which of the following are true about interpreting the Current Ratio? (Check all that apply) A)Too...

Which of the following are true about interpreting the Current Ratio? (Check all that apply)

A)Too high a current ratio means you may have too much invested in short-term assets, which may hurt your long-term profitability

B) A higher current ratio means more safety in the short term

C)A higher current ratio is better

D)A high current ratio means you can’t go bankrupt

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Homework Answers

Answer #1

Option a., b. and c. are true.

A too much higher current ratios indicate that a company is not investing properly in its current assets and there is a problem with the working capital management which may impact the long term profitability.

A higher current ratio is considered safer for short term as it provides more liquidity to the firm to pay its liabilities.

Option d is false.

A higher current ratio may lead to firm's bankruptcy when the working capital is not managed well.

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