Question

when analyzing a companys current ratio:

a. the industry in which the company operates should not be considered.
b. most successful businesses operate with current ratios between 0.1 and 0.5.
c. a current ratio of less than 1.00 means that current liabilities exceed current assets.
d. the current ratio measures the companys ability to pay all liabilities (current and long - term) with current assets.

Explanation:

• Option A: Industry should be considered as different industries have different norms. So this is wrong.
• Option B: A current ratio of 0.1 - 0.5 is very low. Most successful businesses have a current ratio around 2. So this is wrong.
• Option C: Current ratio = Current assets / Current liabilities. If current ratio < 1, then Current assets < Current liabilities. This is correct.
• Option D: Current ratio measures ability to pay current liabilities with current assets. Not long - term. So this is wrong.

Answer:

C. a current ratio of less than 1.00 means that current liabilities exceed current assets.