Rachel, the CEO of Telexon Inc., finds that her company's current ratio is 1:3. In this context, which of the following statements is true?

Question

Quizplus · Accepted Answer

A current ratio of 1:3 indicates that the company has lesser liquid assets than liabilities, which means that the company may face difficulties in meeting its short-term obligations. Therefore, the correct option is D. Option A cannot be correct, as the current ratio is low and not high. Option B is incorrect, as the current ratio does not indicate anything about revenues and costs. Option C is incorrect as leverage is not related to the current ratio. Option E cannot be inferred from the current ratio.