Creditors often compare a firm's ________ and ________ to assess whether the firm has sufficient working capital to meet its short-term needs.
A) total assets; total liabilities
B) current assets; current liabilities
C) total assets; current liabilities
D) current assets; total liabilities

Question

Quizplus · Accepted Answer

Creditors assess a firm's ability to pay off its short-term debts by comparing its current assets (those that can be converted into cash within a year) to its current liabilities (those that need to be paid off within a year). This comparison is commonly known as the current ratio. A higher current ratio indicates that the firm has enough working capital to pay off its short-term debts. Therefore, option B, current assets and current liabilities, is the best choice.

Creditors Often Compare a Firm's ________ and ________ to Assess

Creditors Often Compare a Firm's and to Assess