A company uses current ratio to analyze its financial position. Which of the following information can be obtained from current ratio?
A) efficiency of inventory management
B) productivity of the company's assets
C) information on the short-term solvency
D) information on the total debt of the company
E) information on financial leverage

Question

Quizplus · Accepted Answer

Current ratio measures the ability of a company to pay its short-term obligations. It is calculated by dividing current assets by current liabilities. Therefore, it provides information on the short-term solvency of the company. Efficiency of inventory management (A), productivity of assets (B), total debt (D), and financial leverage (E) are not directly related to current ratio.

A Company Uses Current Ratio to Analyze Its Financial Position