What two measures tell management and short-term creditors if the firm has sufficient capital and can pay its debts?
A) Working Capital Ratio
B) Current Ratio
C) Organizational Ratio
D) A & B

Question

Quizplus · Accepted Answer

The working capital ratio and current ratio both provide information on a company's ability to meet short-term debt obligations. The working capital ratio measures the company's ability to pay off its current liabilities with its current assets, while the current ratio measures the company's ability to pay off its current liabilities with its current assets (excluding inventory). Therefore, by looking at both ratios, management and short-term creditors can determine if the company has sufficient capital and can pay its debts.

What Two Measures Tell Management and Short-Term Creditors If the Firm