Which measure(s) is(are) an evaluation of a company's ability to pay current liabilities? 1. Current ratio.
2) Free cash flow
A) Both 1 and 2.
B) Neither 1 nor 2.
C) 1 only.
D) 2 only

Question

Quizplus · Accepted Answer

The current ratio measures the company's ability to pay current obligations using its current assets. Free cash flow, on the other hand, measures the cash generated by the company after accounting for capital expenditures and other investments. While free cash flow is important for long-term financial health, it is not directly related to a company's ability to pay current liabilities. Therefore, only option 1 (current ratio) is an evaluation of a company's ability to pay current liabilities.

Which Measure(s) Is(are) an Evaluation of a Company's Ability to Pay