Which Statement Concerning the Current (Working Capital) Ratio Is Incorrect

question 10

Multiple Choice

Which statement concerning the current (working capital) ratio is incorrect?

• A) A low current ratio may indicate difficulty in meeting short-term commitments.
• B) The current ratio can be manipulated at balance date,
• C) A high current ratio may indicate excessive investment in working capital.
• D) A current ratio of $1.50 of current assets for each $1 of current liabilities should always be maintained.
• E)g. by using cash to pay off short-term debt.

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Definitions:

Coefficient Of Determination

A statistical measure that determines the proportion of variance in the dependent variable predictable from the independent variable(s).

Total SS

The total sum of squares in statistical analysis, representing the overall variation within a data set.

SSR

Sum of Squared Residuals; it represents the sum of the squared differences between the observed and predicted values in statistical analysis.

Degrees Of Freedom

The number of values in a calculation that are free to vary while estimating statistical parameters or testing hypotheses.