If the current ratio is below one then:

Question

Quizplus · Accepted Answer

The current ratio is calculated as current assets divided by current liabilities. A ratio below one indicates that current liabilities exceed current assets. This suggests that the entity may have difficulty meeting its current obligations and could potentially face financial distress. Since net working capital is calculated as current assets minus current liabilities, a current ratio below one suggests that net working capital is negative or less than zero. Therefore, the correct answer is D.

If the Current Ratio Is Below One Then