What Is the Purpose of Computing the Current Ratio

question 128

Multiple Choice

What is the purpose of computing the current ratio?

• A) To provide investors with some measurement of the returns they can expect from their investment
• B) To measure the extent to which a firm is financed through borrowed money
• C) To measure how much cash the firm has
• D) To measure the firm's ability to meet emergency demands for cash
• E) To measure the firm's ability to meet its current obligations out of its current assets

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Definitions:

Deductive

A logical process in which a conclusion is based on the concordance of multiple premises that are generally assumed to be true.

Analogy

A comparison between two things, typically for the purpose of explanation or clarification, highlighting similarities in some respects.

Inductive Generalization

A type of reasoning where conclusions about general rules are drawn from specific examples or cases.

Deductive Step

A reasoning process in deductive logic where a conclusion is logically derived from premises.