The current ratio concept is particulary useful in: A) Analyzing large firms B)

Question

The current ratio concept is particulary useful in:
A) Analyzing large firms B) comparing the finanical positions of firms of varying sizes C) examining firms with large seasonal sales D) comparing the finanical structures of firms of varying sizes
The current ratio concept is particulary useful in:
A) Analyzing large firms B) comparing the finanical positions of firms of varying sizes C) examining firms with large seasonal sales D) comparing the finanical structures of firms of varying sizes

A) Analyzing large firms B) comparing the finanical positions of firms of varying sizes C) examining firms with large seasonal sales D) comparing the finanical structures of firms of varying sizes

Explanation / Answer

B) comparing the finanical positions of firms of varying sizes

Current ratio is the primary measure of a company's liquidity. Minimum levels of current ratio are often defined in loan covenants to protect the interest of the lenders in the event of deteriorating financial position of the borrowers. Financial regulations of various countries also impose restrictions on financial institutions to lend credit facilities to potential borrowers that have a current ratio which is lower than the defined limits.

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