Which of the following statements about the current ratio is accurate?
A) Use of book values in calculation of this ratio is unacceptable because the market values of these assets and liabilities tend to deviate from book values.
B) This ratio is calculated by dividing current liabilities by current assets.
C) It will always be greater than the quick ratio in companies that carry inventory.
D) This ratio is intended to indicate the long run liquidity position of the firm.
E) The higher the current ratio, the higher the level of cash in a firm.

Question

Quizplus · Accepted Answer

The current ratio is calculated by dividing current assets by current liabilities, and because it includes inventory as part of the current assets, it will always be greater than the quick ratio (which excludes inventory) in companies that carry inventory.

Which of the Following Statements About the Current Ratio Is