A Weakness of the Current Ratio Is

question 97

Multiple Choice

A weakness of the current ratio is

• A) that it can be expressed as a percentage, as a rate, or as a proportion.
• B) that it is rarely used by sophisticated analysts.
• C) the difficulty of the calculation.
• D) that it doesn't take into account the composition of the current assets.

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Definitions:

Flotation Cost

The total costs that a company faces when it issues new securities, including underwriting fees, legal fees, and registration fees.

Retained Earnings

Cumulative net earnings not distributed as dividends to shareholders, but instead reinvested in the business.

Inflation

The pace at which prices for goods and services across the board go up, diminishing the value of money.

Required Rate

The minimum return an investor expects to achieve on an investment, considering its risk level and the opportunity cost of forgoing other investments.