Which of the Following Statements Is an Accurate Interpretation of the Current

question 137

Multiple Choice

Which of the following statements is an accurate interpretation of the current ratio?

• A) A current ratio of 1.5 or higher is considered a high-risk ratio.
• B) A current ratio below 1.00 is considered a good and safe ratio.
• C) A current ratio of 2.0 indicates a strong ability to pay current liabilities.
• D) A current ratio of 0.60 or lower is a good and safe ratio.

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Definitions:

Plant and Equipment

Tangible long-term assets owned by a business, used in the production or supply of goods and services.

Goodwill

An intangible asset that arises when a business is acquired for more than its fair market value, reflecting factors like reputation, brand, and customer loyalty.

Net Working Capital

The difference between a company's current assets and its current liabilities, indicating the liquidity and operational efficiency of the business.

Current Assets

Short-term assets that are expected to be converted into cash, sold, or consumed within one year or within the business's operating cycle, whichever is longer.