CURRENT RATIO

1.What does the current ratio measure?

• A) Profitability

• B) Liquidity

• C) Solvency

• E) Efficiency

1. 2. The formula for the current ratio is:

• A) Current Assets / Current Liabilities

• B) Current Liabilities / Current Assets

• C) Total Assets / Total Liabilities

• D) Net Profit / Sales

3. 3. If a business has RM200,000 in current assets and RM100,000 in current liabilities, what is the current ratio?

• 1. A) 1.5:1

• B) 2.0:1

• C) 2.5:1

• D) 3.0:1

4. 4. If a business’s current assets increase while its current liabilities remain unchanged, what happens to the current ratio?

• 1. A) It decreases

• 1. B) It increases

• 1. C) It remains the same

• 1. D) It becomes negative

1. 5. A business with a current ratio of 3.0 means:

• 1. It has three times as many current liabilities as current assets

• It has three times as many current assets as current liabilities

• It has three times as much long-term debt as current liabilities

• It is unable to pay off its short-term liabilities

1. 6) If a business's current liabilities are RM50,000 and its current ratio is 1.5, what are its current assets?

• 1. A) RM30,000

• 1. B) RM75,000

• 1. C) RM100,000

• RM150,000

1. 7) Which of the following would not be included in the calculation of current assets?

• 1. A) Cash

• 1. B) Accounts receivable

• 1. C) Inventory

• 1. D) Machinery

1. 8) An increase in accounts payable would likely:

• 1. A) Increase the current ratio

• 1. B) Decrease the current ratio

• 1. C) Have no effect on the current ratio

• 1. D) Make the current ratio negative

1. 9) Which of the following scenarios could decrease a company’s current ratio?

• 1. A) Obtaining a new long-term loan

• 1. B) Purchasing new equipment with cash

• 1. C) Receiving cash from a customer

• 1. D) Selling inventory on credit

1. 10) Which financial statement provides information needed to calculate the current ratio?

• 1. A) Statement of Profit or Loss

• 1. B) Statement of cash flows

• 1. C) Statement of Financial Position

• 1. D) Statement of changes in equity