Which of the following is true of current ratio?
A) The more predictable a firm's cash flows, the higher the acceptable current ratio.
B) A higher current ratio indicates a higher return on equity.
C) The more predictable a firm's current ratio, the higher the current liabilities.
D) A higher current ratio indicates a greater degree of liquidity.

Question

Quizplus · Accepted Answer

A higher current ratio indicates that a firm has more current assets relative to its current liabilities, which means it has a greater degree of liquidity. This implies that the firm is better able to meet its short-term obligations as they come due. Choices A, B, and C are incorrect because they do not reflect the true nature of current ratio.

Which of the Following Is True of Current Ratio