The Current Ratio Measures How Strong the Business Is in Its

question 9

Multiple Choice

The current ratio measures how strong the business is in its ability to do what?

• A) Purchase adequate inventory
• B) Pay off short- term debts
• C) Pay off long- term debts

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Definitions:

Forward Contracts

Financial derivatives that represent agreements to buy or sell an asset at a predetermined future date and price.

Futures Contracts

Agreements to buy or sell a particular commodity or financial instrument at a predetermined price at a specific time in the future.

Non-monetary Items

Items on the balance sheet that cannot be readily converted into cash and are not carried at their cash value, such as property, plant, and equipment.

Fair Value

The estimated market value of an asset or liability, based on current market conditions and comparable transactions, used in financial reporting to provide a clear picture of a company’s financial health.