Asked by Bridget Parks on May 31, 2024
Verified
If two companies have the same current ratio, their ability to pay short-term debt is the same.
Current Ratio
The current ratio is a liquidity ratio that measures a company's ability to cover its short-term liabilities with its short-term assets.
Short-Term Debt
Borrowings that are due for repayment within one year, used to finance immediate expenses or working capital requirements.
- Determine and explain the significance of working capital and current ratio, and their impact on a firm’s liquidity situation.
Verified Answer
SS
Shaherah Samsudin04Jun 01, 2024
Final Answer :
False
Explanation :
The current ratio only provides a snapshot of liquidity and does not account for the quality of assets, the timing of cash flows, or the companies' debt structures, which can all affect their ability to pay short-term debt.
Learning Objectives
- Determine and explain the significance of working capital and current ratio, and their impact on a firm’s liquidity situation.