In Comparing the Current Ratios of Two Companies,why Is It

question 46

Multiple Choice

In comparing the current ratios of two companies,why is it invalid to assume that the company with the higher current ratio is the better company?

• A) The two companies may be different sizes.
• B) A high current ratio may indicate inadequate inventory on hand.
• C) The two companies may define working capital in different terms.
• D) A high current ratio may indicate inefficient use of various assets and liabilities.

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Definitions:

Perfect Tender Rule

A legal principle in sales law requiring goods delivered under a contract to exactly meet the terms, quantities, and quality specified by the buyer.

Defective Goods

Products that are not functioning as intended or are unsafe due to manufacturing flaws, design defects, or inadequate instructions.

Constitutes Acceptance

The act or process that signals agreement to the terms of an offer, thereby creating a binding contract.

Testing

The process of evaluating a product, service, or system to determine if it meets specified requirements, or to identify differences between expected and actual results.