Peak Performance Sporting Goods Company has just applied for a bank loan in order to expand the business.Using the most recent Balance Sheet data provided by the company owner,you calculate that the company's current ratio is 2.5.In your presentation to the company boss,you remark:
A)Peak Performance is currently having trouble meeting its short-term obligations.
B)Peak Performance has $2.50 that it owes each month,for every $1.00 of cash that it is generating.
C)Peak Performance has $2.50 of current assets for each $1.00 of currently liabilities.
D)Due to the fact that most of Peak Performance's current assets are tied-up in inventory,there is no need to worry about whether Peak Performance will be able to make loan payments.

Question

Quizplus · Accepted Answer

The current ratio is calculated by dividing current assets by current liabilities. A current ratio of 2.5 means that Peak Performance has $2.50 of current assets for each $1.00 of current liabilities, indicating that the company has enough current assets to cover its current liabilities. Therefore, choice C is the best answer. Choices A, B, and D are all incorrect.

Peak Performance Sporting Goods Company Has Just Applied for a Bank