The amount of working capital is more meaningful to users than the current ratio because it provides information on the composition of the current accounts.

Question

Quizplus · Accepted Answer

The current ratio provides a measure of a company's ability to cover its short-term obligations with its short-term assets, which is a critical piece of information for users. The amount of working capital (current assets minus current liabilities) does not provide information on the composition of the current accounts; it only provides a net figure.

The Amount of Working Capital Is More Meaningful to Users