Current Ratio

What is the primary purpose of calculating the current ratio in a business context?

• To assess a company's ability to pay short-term obligations

• To determine a company's profitability

• To evaluate long-term investment potential

• To calculate employee productivity

Which of the following is included in the calculation of the current ratio?

• Long-term debt

• Inventory

• Fixed assets

• Shareholder equity

A current ratio of less than 1 indicates what about a company's financial health?

• The company has more current liabilities than current assets

• The company is highly profitable

• The company has more current assets than current liabilities

• The company is in a strong financial position

If a company has current assets of $150,000 and current liabilities of $100,000, what is its current ratio?

• 0.67

• 1.5

• 1.0

• 2.0

Which of the following industries might typically have a lower current ratio?

• Retail

• Utilities

• Technology

• Real Estate

How can a company improve its current ratio?

• Increase short-term debt

• Sell long-term assets

• Increase current assets

• Decrease shareholder equity

What does a current ratio of 2:1 signify?

• The company has twice as many current liabilities as current assets

• The company has twice as many current assets as current liabilities

• The company is twice as profitable as its competitors

• The company has twice the market share

Which financial statement is primarily used to calculate the current ratio?

• Income Statement

• Balance Sheet

• Cash Flow Statement

• Statement of Retained Earnings

Why might a very high current ratio be a cause for concern?

• It indicates excessive short-term debt

• It suggests inefficient use of assets

• It shows a lack of profitability

• It reflects high employee turnover

What is the formula for calculating the current ratio?

• Current Assets / Current Liabilities

• Current Liabilities / Current Assets

• Total Assets / Total Liabilities

• Net Income / Total Revenue