Asked by Ashley Sanchez on Jul 15, 2024
Verified
The current ratio is more useful than working capital in making comparisons across companies.
Current Ratio
A liquidity ratio that measures a company's ability to pay short-term and long-term obligations, calculated as current assets divided by current liabilities.
Working Capital
The difference between a company's current assets and current liabilities, indicating the liquidity available to run its operations.
- Ascertain the characteristics and methodologies for calculating important financial ratios and their influence on a company’s solvency and cash flow.
Verified Answer
LW
lynetta watersJul 22, 2024
Final Answer :
True
Explanation :
The current ratio is a more standardized measure than working capital, as it is a ratio of current assets to current liabilities. Working capital can vary greatly between different companies and industries, making it less useful for comparisons. Additionally, the current ratio takes into account both the liquidity of current assets and the timing of current liabilities, providing a more complete picture of a company's short-term financial health.
Learning Objectives
- Ascertain the characteristics and methodologies for calculating important financial ratios and their influence on a company’s solvency and cash flow.
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