Which of the Following Statements Regarding Liquidity Ratios Is False

question 112

Multiple Choice

Which of the following statements regarding liquidity ratios is false?

• A)A high current ratio generally indicates the ability to pay current liabilities on a timely basis.
• B)A high acid-test ratio generally indicates the ability to pay current liabilities on a timely basis.
• C)All current assets are due within one year and therefore have essentially equal liquidity.
• D)As a rule of thumb,a current ratio of 1 or higher often reflects an acceptable level of liquidity.

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Definitions:

Market Price

The current price at which an asset or service can be bought or sold in a particular market.

Earnings per Share

A financial indicator showing the portion of a company's profit allocated to each outstanding share of common stock.

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations or those due within one year, calculated by dividing current assets by current liabilities.

Stock Dividend

A payment made by a corporation to its shareholders in the form of additional shares, rather than cash.