The purpose of the current ratio is to evaluate the firm's ability to:
A)Generate sales with a given level of current assets.
B)Utilize current assets profitably.
C)Pay its bills in the short run.
D)Effectively use borrowed funds.

Question

Quizplus · Accepted Answer

The current ratio is calculated by dividing current assets by current liabilities. It measures the firm's ability to pay its short-term liabilities with its short-term assets. Therefore, the best choice is C, as it evaluates the firm's ability to pay its bills in the short run. Choices A and B are related to the efficiency of the firm's operations, while choice D is related to the firm's financial leverage. These are important aspects to analyze, but they are not directly related to the current ratio.

The Purpose of the Current Ratio Is to Evaluate the Firm's