All of the Following Regarding the Current Ratio Are True

question 64

Multiple Choice

All of the following regarding the current ratio are true except:

• A)Current ratio is calculated by dividing current assets by current liabilities.
• B)Current ratio helps to assess a company's ability to pay its debts in the near future.
• C)Current ratio does not affect a creditor's decision on whether to allow a company to buy on credit.
• D)Current ratio can affect a creditor's decision about whether to lend money to a company.
• E)Current ratio can reveal challenges in covering short-term obligations if it is less than 1.

---

Definitions:

Canadian-Controlled Private Corporation (CCPC)

A Canadian-Controlled Private Corporation (CCPC) is a classification in Canada for a privately held company that is controlled by Canadian residents.

Earnings Before Taxes (EBT)

A measure of a company's profitability that calculates income before the deduction of tax expenses.

Free Cash Flow

The sum of money a business produces once it subtracts the cash spent to sustain its operations and upkeep of its capital assets.

Operating Costs

Expenses associated with running a business's core operations on a daily basis, excluding the cost of goods sold.