A ________ is a liquidity ratio that indicates the extent to which short-term assets can decline and still be adequate to pay short-term liabilities.
A) current ratio
B) return on investment
C) debt-equity ratio
D) leverage ratio
E) profitability ratio

Question

Quizplus · Accepted Answer

The current ratio measures a company's ability to pay short-term liabilities with its current assets. It is calculated by dividing current assets by current liabilities. If the ratio is less than 1, it indicates that the company may have difficulty paying its short-term liabilities. Therefore, a high current ratio provides assurance that the company can meet its short-term obligations even if its short-term assets decrease.

A ________ Is a Liquidity Ratio That Indicates the Extent