Company A has current assets of $42 billion and current liabilities of $31 billion. Company B has current assets of $2.7 billion and current liabilities of $1.8 billion. Which of the following statements is correct, based on this information?
A)Company A has less leverage than Company B.
B)Company A has greater leverage than Company B.
C)Company A and Company B have roughly equivalent enterprise values.
D)Company A is less likely than Company B to have sufficient working capital to meet its short-term needs.

Question

Quizplus · Accepted Answer

Company A has a current ratio of 1.35 ($42 billion / $31 billion), while Company B has a current ratio of 1.5 ($2.7 billion / $1.8 billion). A higher current ratio indicates better ability to cover short-term liabilities, so Company A is less likely than Company B to have sufficient working capital to meet its short-term needs.

Company a Has Current Assets of $42 Billion and Current