The current ratio indicates a firm's ability to meet its short-term obligations.Analysts prefer a current ratio that at least exceeds
A).5
B)1.0
C)2.0
D)3.0
E)4.0

Question

Quizplus · Accepted Answer

A current ratio of 1.0 means that the firm has exactly enough current assets to cover its current liabilities. Analysts prefer a current ratio of at least 1.0 to ensure that the firm can meet its short-term obligations without undue stress or difficulty. Ratios higher than 1.0 indicate a stronger ability to meet short-term obligations, but excessively high ratios may indicate that the firm is holding too many assets in cash or other low-yielding investments. Therefore, a current ratio of 1.0 is considered the minimum threshold for most analysts.

The Current Ratio Indicates a Firm's Ability to Meet Its