Jill's Business Has Current Assets of $50,000 and Current Liabilities

question 19

Multiple Choice

Jill's business has current assets of $50,000 and current liabilities of $25,000. Which of the following statements is true about her company's current ratio?

• A) The ratio is 50 percent and is acceptable for most industries.
• B) The ratio is 2.0 and is acceptable for most industries.
• C) The ratio is $25,000 and is not acceptable for most industries.
• D) The current ratio cannot be determined from the information given.

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Definitions:

Inventory Period

The time span between purchasing goods for sale and their eventual sale to customers.

Restrictive Financial Policies

Restrictive financial policies are measures implemented by a company to maintain financial stability and discipline, often involving limits on capital spending, borrowing, and dividend distributions.

Current Asset Management

The practice of managing a company's short-term assets and liabilities to ensure it has sufficient liquidity to run its operations efficiently.

Pro Forma Cash Budgets

Projected budgets that estimate the inflow and outflow of cash to a business over a specified period, used for planning purposes.