Which of the Following Statements Concerning the Current Ratio Is

question 47

Multiple Choice

Which of the following statements concerning the current ratio is incorrect?

• A) The current ratio can be manipulated at balance date,e.g. by using cash to pay off short-term debt.
• B) A high current ratio may indicate excessive investment in working capital.
• C) A low current ratio may indicate difficulty in meeting short-term commitments.
• D) A current ratio of 1.5 to 1 should always be maintained.

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Definitions:

Cognitive Biases

Misperceptions or misunderstandings that cause systematic errors. Most result either from heuristics that are prone to systematic errors or because the brain is attempting to solve a type of problem (such as a calculus problem) for which it was not evolutionarily evolved and for which it has little innate capability.

Confirmation Bias

The tendency to search for, interpret, favor, and recall information in a way that confirms one's preexisting beliefs or hypotheses.

Behavioral Economists

Researchers focusing on the impact that psychological, cognitive, emotional, cultural, and social elements have on the economic decisions of individuals and organizations.

Investment Portfolio

A collection of various types of investments held by an individual, institution, or financial entity designed to achieve specific financial goals.