Which of the following ratios is used by short-term creditors to assess the debt-paying ability of a company?
A) Return on sales ratio
B) Current ratio
C) Inventory turnover ratio
D) Equity ratio

Question

Quizplus · Accepted Answer

Short-term creditors are concerned with a company's ability to pay its debts in the near future. The current ratio, which is calculated by dividing current assets by current liabilities, is a measure of a company's ability to do so. A higher current ratio indicates a better ability to pay short-term debts. Return on sales ratio measures a company's profitability, inventory turnover ratio measures the efficiency of inventory management, and equity ratio measures the amount of assets financed by shareholders' equity.

Which of the Following Ratios Is Used by Short-Term Creditors