Which of the following indicates a firm will be able to pay its bills in a satisfactory manner?
A) A debt to equity ratio of 1:1 or higher
B) An activity ratio of 5:1 or less
C) A net income to common shares outstanding ratio of 1:1 or less
D) A current ratio of 2:1 or higher
E) A profitability ratio of 5:1 or higher

Question

Quizplus · Accepted Answer

A current ratio of 2:1 or higher indicates that the company has enough current assets (such as cash, accounts receivable, and inventory) to cover its current liabilities (such as accounts payable and short-term debt) in a satisfactory manner. A higher current ratio generally suggests greater liquidity and ability to pay bills on time. Options A, B, C, and E are not necessarily indicators of a firm's ability to pay bills in a satisfactory manner.

Which of the Following Indicates a Firm Will Be Able