Which of the following statements concerning the current ratio are true?
I. It is always larger than the acid-test (quick) ratio
II. Companies can window-dress their current ratios
III. In isolation the current ratio has little meaning
IV. It is a good indicator of solvency of a company
A) I, II, III and IV
B) I, II and III
C) II, III and IV
D) I, II and IV

Question

Quizplus · Accepted Answer

The current ratio is typically larger than the acid-test ratio because it includes inventory and other current assets. Companies can manipulate their current ratios temporarily through window-dressing. The current ratio alone doesn't provide much insight without context, such as industry norms or historical data. However, it is not always a good indicator of solvency, as it doesn't account for the quality of current assets.

Which of the Following Statements Concerning the Current Ratio Are