Question

Which of the following statements is true of the current ratio? a. A current ratio below...

Which of the following statements is true of the current ratio?

a.

A current ratio below 1.0 signifies that a company does not have enough current assets to pay short-term liabilities.
b.

Current ratio is classified under the leverage ratio.
c.

The larger the current ratio, the harder it is for the firm to pay its short-term debts.
d.

Current ratio is computed by dividing the firm's current liabilities by its current assets.
Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

a. A current ratio below 1.0 signifies that a company does not have enough current assets to pay short-term liabilities.

Current Ratio = Current Asset/Current Asset

Current ratio is a liquidity ratio which tells us the liquidity position of the firm. It is computed by dividing current assets by current liabilities. It can be interpreted as the how much times is current assets of current liabilities. Ratio greater than 1 means current liabilities can be paid using current assets while ratio below means that current liabilities cannot be paid just by current assets.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The following data were taken from the financial statements of Gates Inc. for the current fiscal...
The following data were taken from the financial statements of Gates Inc. for the current fiscal year. Property, plant, and equipment (net) $1,154,400 Liabilities: Current liabilities $177,000 Note payable, 6%, due in 15 years 888,000 Total liabilities $1,065,000 Stockholders' equity: Preferred $4 stock, $100 par (no change during year) $1,597,500 Common stock, $10 par (no change during year) 1,597,500 Retained earnings: Balance, beginning of year $1,704,000 Net income 633,000 $2,337,000 Preferred dividends $63,900 Common dividends 143,100 207,000 Balance, end of...
Which of the following may be true of debt covenants? A. Limit the issuance of additional...
Which of the following may be true of debt covenants? A. Limit the issuance of additional debt senior to the obligation. B. Specify minimum levels of selected financial ratios. C. Specify minimum levels of earnings coverage. D. All of the above. All other things being equal, all of the following actions will increase financial leverage except: A. Repurchase stock B. Sell accounts receivable at face value C. Issue more bonds D. Pay higher dividends Which statement is TRUE? A.    Liquidity...
Working capital: Mukhopadhya Network Associates has a current ratio of 1.60, where the current ratio is...
Working capital: Mukhopadhya Network Associates has a current ratio of 1.60, where the current ratio is defined as follows: Current ratio = Current assets/Current liabilities. The firm's current assets are equal to $1,233,265, its accounts payables are $419,357, and its notes payables are $351,663. Its inventory is currently at $721,599. The company plans to raise funds in the short-term debt market and invest the entire amount in additional inventory. How much can notes payable increase without the current ratio falling...
Mukhopadhya Network Associates has a current ratio of 1.60, where the current ratio is defined as...
Mukhopadhya Network Associates has a current ratio of 1.60, where the current ratio is defined as follows: current ratio = current assets/current liabilities. The firm's current assets are equal to $1,233,265, its accounts payables are $419,357, and its notes payables are $351,663. Its inventory is currently at $721,599. The company plans to raise funds in the short-term debt market and invest the entire amount in additional inventory. How much can notes payable increase without the current ratio falling below 1.40?...
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
Working Capital and Short-Term Firm Liquidity Ratios Favor Company has a current ratio of 2.08 (2.08:1)...
Working Capital and Short-Term Firm Liquidity Ratios Favor Company has a current ratio of 2.08 (2.08:1) on December 31. On that date its current assets are as follows: Cash and cash equivalents $28,000 Short-term investments 87,000 Accounts receivable (net) 125,000 Inventory 258,500 Prepaid expenses 9,980 Current assets $508,480 Favor Company's current liabilities at the beginning of the year were $192,000 and during the year its operating activities provided a cash flow of $38,830. a. What are the firm's current liabilities...
State whether the following statements are true or false. Within Corporation, one key value of limited...
State whether the following statements are true or false. Within Corporation, one key value of limited liability is that it lowers owners' risks and thereby enhances a firm's value. Money markets are markets for short-term debt securities. Negative net operating cash flow of firm means that the firm has solvency. Agency Problem creates when managers are acting on behalf of owners’ interest. Increase in current liabilities and decrease in current asset represents inflow cash. If an individual investor buys or...
Current Position Analysis The following data were taken from the balance sheet of Nilo Company at...
Current Position Analysis The following data were taken from the balance sheet of Nilo Company at the end of two recent fiscal years: Current Year Previous Year Current assets:   Cash $433,200 $353,600   Marketable securities 501,600 397,800   Accounts and notes receivable (net) 205,200 132,600   Inventories 831,600 539,200   Prepaid expenses 428,400 344,800   Total current assets $2,400,000 $1,768,000 Current liabilities:   Accounts and notes payable   (short-term) $348,000 $364,000   Accrued liabilities 252,000 156,000   Total current liabilities $600,000 $520,000 a. Determine for each year (1) the...
22. The RRR Company has a target current ratio of 3.2. Presently, the current ratio is...
22. The RRR Company has a target current ratio of 3.2. Presently, the current ratio is 4.1 based on current assets of $12,956,000. If RRR expands its fixed assets using short-term liabilities (maturities less than one year), how much additional funding can it obtain before its target current ratio is reached? (Round your answer to the nearest dollar.)
Which of the following would not improve the current ratio? a. Borrow short term to finance...
Which of the following would not improve the current ratio? a. Borrow short term to finance additional fixed assets. b. Issue long-term debt to buy inventory. c. Sell common stock to reduce current liabilities. d. Sell fixed assets to reduce accounts payable.
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT