The current ratio is a more dependable indicator of liquidity than working capital.

Question

Quizplus · Accepted Answer

The current ratio compares current assets to current liabilities and provides a better measure of a company's ability to pay its short-term obligations than working capital alone. Working capital is just the difference between current assets and current liabilities and doesn't give an idea of the relative size of each. Therefore, the current ratio is a more dependable indicator of liquidity.

The Current Ratio Is a More Dependable Indicator of Liquidity