Adkins Company has a current ratio of 1.0 and a debt ratio of 0.7.Wilson Company has a current ratio of 1.4 and a debt ratio of 0.5.Both companies are in the same industry.Which of the following statements is TRUE?
A) The two companies' debt ratios and current ratios vary in different directions, and the companies appear to be in similar financial shape.
B) Adkins Company appears to be in better financial shape than Wilson Company.
C) The two companies' debt ratios and current ratios vary in different directions, and these results do not make sense.
D) Wilson Company appears to be in better financial shape than Adkins Company.

Question

Quizplus · Accepted Answer

A higher current ratio indicates a better ability to meet short-term obligations, which Wilson Company has compared to Adkins Company. A lower debt ratio indicates a lower financial risk, which Wilson Company also has compared to Adkins Company. Therefore, Wilson Company appears to be in better financial shape than Adkins Company.

Adkins Company Has a Current Ratio of 1