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

question 16

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

Identify the various stakeholders and their interests in financial statement analysis.

Assess the impact of inventory management on a company's investment needs.

Interpret profitability ratios and their relevance to stakeholders.

Understand the tools and techniques of financial analysis, including ratio, horizontal, and vertical analysis.

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Definitions:

Government Transfers

Payments made by the government to individuals, without any goods or services being received in return.

Tax Rate

The percentage at which an individual or corporation is taxed, which can vary depending on income level, type of good, or jurisdiction.

Income Mobility

Relates to the ability of individuals or families to move up or down the economic ladder over time.

Economic Ladder

A metaphorical representation of the differing levels of economic prosperity among individuals in a society, indicating potential for upward mobility.