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:

Monetary Stimulus

Economic policy measures undertaken by central banks to increase the money supply and lower interest rates, aimed at boosting economic activity.

High Inflation

A situation where the general level of prices for goods and services rises rapidly over a period of time, eroding purchasing power.

Recession

A period of economic decline across the market, often recognized by a decrease in GDP for two consecutive quarters.

Regulatory Capture

A situation where regulatory agencies are dominated by the industries they are charged with regulating, often leading to decisions that benefit the industry rather than the public interest.