The current ratio is:Question 3Answera.calculated by subtracting current liabilities from current assetsb.calculated by dividing current liabilities by current assetsc.used to evaluate a company's solvency and long-term debt paying abilityd.used to evaluate a company's liquidity and short-term debt paying ability
Question
The current ratio is:Question 3Answera.calculated by subtracting current liabilities from current assetsb.calculated by dividing current liabilities by current assetsc.used to evaluate a company's solvency and long-term debt paying abilityd.used to evaluate a company's liquidity and short-term debt paying ability
Solution
The current ratio is:
a. Incorrect. The current ratio is not calculated by subtracting current liabilities from current assets. This would give you the net working capital, not the current ratio.
b. Incorrect. The current ratio is not calculated by dividing current liabilities by current assets. It's actually the other way around - you divide current assets by current liabilities.
c. Incorrect. The current ratio is not used to evaluate a company's solvency and long-term debt paying ability. This is more related to ratios like the debt ratio or equity ratio.
d. Correct. The current ratio is used to evaluate a company's liquidity and short-term debt paying ability. It shows a company's ability to pay off its short-term liabilities with its short-term assets. A higher current ratio indicates more liquidity, which means the company is more capable of paying its debts as they come due.
Similar Questions
The current ratio is calculated by dividing:a.Current assets by current liabilitiesb.Current liabilities by current assetsc.Total assets by total liabilitiesd.Total liabilities by total assets
The current ratio is the ratio of current assets to current liabilities, whereas the - ratio is the ratio of cash, accounts receivable, and marketable securities to current liabilities.
Current assets divided by current liabilities is the:Multiple ChoiceCurrent ratio.Quick ratio.Debt ratio.Liquidity ratio.Solvency ratio.
A current ratio of 2.20 indicates that:Multiple Choicefor each $1 in current assets, the company has $2.20 in current liabilities.for each $1 in total liabilities, the company has $2.20 in total assets.for each $1 in total assets, the company has $2.20 in total liabilities.for each $1 in current liabilities, the company has $2.20 in current assets.
The current ratio is primarily used to evaluate a company's:ProfitabilityEfficiencyLeverageLiquiditychat_bubble_outline
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