Which of the following measures a company's ability to pay its current liabilities?
A) earnings per share
B) inventory turnover
C) current ratio
D) times interest earned

Question

Quizplus · Accepted Answer

The current ratio measures a company's ability to pay its current liabilities (debts due within one year) with its current assets (cash, accounts receivable, inventory, etc.). A ratio of 2 or higher is generally considered healthy, as it indicates that the company has twice as many current assets as current liabilities available to meet its obligations. Earnings per share measure a company's profitability, inventory turnover measures how quickly a company sells its inventory, and times interest earned measures a company's ability to make interest payments on its debt. While these measures are important, they do not directly assess a company's ability to pay its creditors in the short term.

Which of the Following Measures a Company's Ability to Pay