It Is Important to Review Not Just the Current Ratio

question 32

Multiple Choice

It is important to review not just the Current Ratio, but also the Quick Ratio and Cash Ratio because:

• A)the Cash Ratio must always provide a greater statistic than the Current Ratio and Quick Ratio.
• B)the Quick Ratio includes inventory that can be easily liquidated for cash.
• C)a low Current Ratio may not necessarily indicate a problem with a company.
• D)companies can operate with a Cash Ratio close to zero and maintain liquidity.
• E)GAAP requires it.

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Definitions:

Interest Periods

Specific intervals of time over which interest is calculated and paid on financial investments or charged on loans.

Rate of Return

The positive or negative return on an investment during a designated period, stated in terms of a percentage of the original investment's expense.

Invest

The act of allocating resources, usually money, in the expectation of generating an income or profit.

Discount Rate

A percentage used to calculate the present value of future cash flows or investments.