Which of the following statements about the current ratio is NOT true?
A) The current ratio indicates whether the company has enough short-term assets to cover its short-term debts.
B) An extremely high ratio is always a favourable sign.
C) A ratio above 1 indicates that working capital is positive.
D) The current ratio is calculated as current assets divided by current liabilities.

Question

Quizplus · Accepted Answer

An extremely high current ratio may indicate that the company is not effectively utilizing its current assets or may have excess inventory or cash on hand, which is not necessarily always a favourable sign.

Which of the Following Statements About the Current Ratio Is