Asked by Derek Lewis on Jun 11, 2024
Verified
An advantage of the current ratio is that it considers the makeup of the current assets.
Current Ratio
A liquidity ratio that measures a company's ability to pay short-term obligations, calculated as current assets divided by current liabilities.
Current Assets
Assets that are expected to be converted into cash, sold or consumed within a year or within the operating cycle of a business, such as cash, marketable securities, inventory, and accounts receivable.
- Assess and clarify the working capital as well as the current ratio, understanding their repercussions on a business's liquid assets.
Verified Answer
AS
Anmol SheikhJun 17, 2024
Final Answer :
False
Explanation :
The current ratio measures a company's ability to pay short-term obligations by comparing current assets to current liabilities, but it does not consider the composition or quality of the current assets, such as how quickly they can be converted to cash.
Learning Objectives
- Assess and clarify the working capital as well as the current ratio, understanding their repercussions on a business's liquid assets.