When Analyzing a Company's Current Ratio

question 31

Multiple Choice

When analyzing a company's current ratio:

• A) the current ratio is equal to total current assets divided by total liabilities.
• B) most successful businesses operate with current ratios between 2.0 and 2.5.
• C) a current ratio of less than 1.00 means that current liabilities exceed current assets.
• D) the industry the company is in should not be considered.

---

Definitions:

Market Price

The current exchange price for an asset or service in the marketplace.

Discount Rate

The interest rate used to determine the present value of future cash flows or to discount future obligations.

Maturity

The predetermined date on which a financial instrument, loan, or security reaches its final payment, at which point the principal amount must be repaid.

Zero-Coupon Bond

A debt security that doesn't pay periodic interest, sold at a discount from its face value, and repays the face value at maturity.