Asked by Julie RoseModelProductions on Apr 24, 2024
Verified
The most important information needed to determine if a company can pay its current obligations is the
A) net income for this year.
B) projected net income for next year.
C) relationship between current assets and current liabilities.
D) relationship between current and non-current liabilities.
Current Obligations
Short-term financial liabilities or debts that are due for payment within one year.
Current Assets
Assets that are expected to be converted into cash, sold, or consumed in the business cycle within one year.
Current Liabilities
Short-term financial obligations due within one year or less, typically including accounts payable, short-term loans, and other similar liabilities.
- Assess and illustrate the importance of working capital in the appraisal of an entity's short-term financial condition.
- Analyze and appraise the liquidity status of a company utilizing ratios, for instance, the current ratio.
Verified Answer
JD
Justine Ducusin5 days ago
Final Answer :
C
Explanation :
The relationship between current assets and current liabilities, often referred to as the current ratio, is crucial for determining a company's ability to pay its short-term obligations. This ratio provides insight into the company's liquidity by comparing assets that can be quickly converted into cash to liabilities that are due within a year.
Learning Objectives
- Assess and illustrate the importance of working capital in the appraisal of an entity's short-term financial condition.
- Analyze and appraise the liquidity status of a company utilizing ratios, for instance, the current ratio.