The reliability of the current ratio as a measure of liquidity can be reduced by:

Question

Quizplus · Accepted Answer

The current ratio measures the ability of a company to pay its short-term obligations with its current assets. However, if a company has inventory that will not sell, it will have difficulty converting it to cash and may not be able to meet its short-term obligations. This reduces the reliability of the current ratio as a measure of liquidity. Surplus marketable securities, accounts receivable paid in advance, and the use of trade credit do not necessarily affect the reliability of the current ratio as a measure of liquidity.

The Reliability of the Current Ratio as a Measure of Liquidity