Which of the Following Statements About the Current Ratio Is

question 65

Multiple Choice

Which of the following statements about the current ratio is NOT true?

• A) The current ratio is also known as the working capital ratio.
• B) The interpretation of the current ratio depends very much on the nature of the enterprise and its way of doing business.
• C) A ratio greater than 2:1 is a guarantee of survival.
• D) A positive working capital indicates that the business has sufficient funds to pay its commitments.

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Definitions:

Payout Ratio

The proportion of earnings paid out as dividends to shareholders, typically expressed as a percentage of the company's total net income.

Cost Of Goods Sold

Costs that are directly incurred in the process of producing goods for sale by a company, such as labor and material expenses.

Selling And Administrative Expenses

Costs incurred by a company that are not directly tied to a specific product or service's production but are necessary for running the business.

Financial Planning

The process of outlining how a business or individual will manage their finances to meet goals and objectives, involving budgeting, investments, retirement planning, and tax strategies.