Question

Which of the following statements is true of the current ratio? The larger the current ratio, the harder it is for the firm to pay its short-term debts. A current ratio below 1.0 signifies a company's inability to pay its short-term liabilities with its current assets. Current ratio is classified under the leverage ratio. Current ratio is computed by dividing the firm's current liabilities by its current assets.

Answer 1

The correct answer is this one: " A current ratio below 1.0 signifies a company's inability to pay its short-term liabilities with its current assets." It is the statement that presents a true description about the current ratio. Current ratio refers to the liquidity ratio in which the ability of the company is measured as to how they be able to pay short-term and long-term obligations.