A Weakness of the Current Ratio Is

question 54

Multiple Choice

A weakness of the current ratio is

• A)the difficulty of the calculation.
• B)it uses year-end balances of current asset and current liability accounts.
• C)it is rarely used by sophisticated analysts.
• D)it can be expressed as a percentage, as a rate, or as a proportion.

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Definitions:

Deficit Balance

A situation where liabilities exceed assets or expenses exceed revenues, resulting in a negative balance.

Partnership

A business structure where two or more individuals manage and operate a business in accordance with the terms and objectives set out in a Partnership Agreement.

Significant Operating Losses

Large financial deficits incurred from a company's core operations, indicating potential struggles in its business model or market.

Material Losses

Financial losses significant enough to affect an entity's financial statements or operational outcomes.