Which of the following statements about the current ratio is accurate?
A) Use of book values in calculation of this ratio is unacceptable because the market values of these assets and liabilities tend to deviate from book values.
B) This ratio is calculated by dividing current liabilities by current assets.
C) It will always be greater than the quick ratio in companies that carry inventory.
D) This ratio is intended to indicate the long run liquidity position of the ﬁrm.
E) The higher the current ratio, the higher the level of cash in a ﬁrm.

Question

Quizplus · Accepted Answer

The current ratio is calculated by dividing current assets by current liabilities, and it includes inventory, unlike the quick ratio. Therefore, it will generally be higher than the quick ratio for companies with inventory.

Which of the Following Statements About the Current Ratio Is