The Rule of Thumb for the Current Ratio Is 2:1

question 106

Multiple Choice

The rule of thumb for the current ratio is 2:1.When would a current ratio below this threshold not necessarily be a concern for a company?

• A)When cash flows are steady and reliable
• B)When inventories are high
• C)When accounts receivable balances are high
• D)None of these choices are correct

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Definitions:

Depreciation

This refers to the accounting process of allocating the cost of tangible assets over their useful lives, representing how much of an asset's value has been used up over time.

Office Equipment

Tangible items that are used in an office setting for operational purposes, such as computers, desks, and printers.

Financial Statements

Formal records of the financial activities and position of a business, person, or other entity, usually comprising the balance sheet, income statement, and cash flow statement.

Profit Margin

Profit Margin is a financial metric that measures the percentage of revenue remaining after all expenses have been deducted from sales.