alleryStart learning →Traditionally, what current ratio has been considered good?
AA current ratio of about 5
BA current ratio of about 8
CA current ratio of about 10
DA current ratio of about 2
Answer & Solution
Correct answer: D. A current ratio of about 2
1. A current ratio of 2 has traditionally been considered good.
2. That means $2 of current assets stand behind every $1 of current liabilities.
3. Whether 2 is enough depends on the industry: public utilities, with very steady cash flow, operate quite well well below 2.
4. Manufacturers and merchandisers carrying high inventories and many receivables may find 2 inadequate.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 14 "Using Financial Information and Accounting", section 14.7 Analyzing Financial Statements_
Keep practising Using Financial Information and Accounting
Browse all Using Financial Information and Accounting questions for US CMA Part 2, or explore more Financial Management topics.
Related questions
A bakery reports total liabilities of $70,150 and owners' equity of $78,750. What is its dCost of goods sold was $112,500, beginning inventory was $18,000 and ending inventory was How is the inventory turnover ratio calculated?What do activity ratios reflect?A bakery earned a net profit of $32,175 and has 10,000 shares of common stock outstanding.Earnings per share tells an investor what?A bakery earned a net profit of $32,175 and reports total owners' equity of $78,750. What Return on equity measures what?