The current ratio (current assets + current liabilities) for this business is
(A) too high - HSC - SSCE Business Studies - Question 12 - 2016 - Paper 1
Question 12
The current ratio (current assets + current liabilities) for this business is
(A) too high.
(B) acceptable.
(C) dangerously low.
(D) unable to be calculated.
Worked Solution & Example Answer:The current ratio (current assets + current liabilities) for this business is
(A) too high - HSC - SSCE Business Studies - Question 12 - 2016 - Paper 1
Step 1
Identify the Current Ratio
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Answer
The current ratio is a financial metric that measures a business's ability to cover its short-term liabilities with its short-term assets. It is calculated as:
A ratio above 1 indicates that current assets exceed current liabilities.
Step 2
Evaluate the Given Options
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Answer
Based on the calculated current ratio, we need to evaluate its position relative to standard benchmarks. Generally, a current ratio between 1.5 and 2 is considered healthy, indicating sufficient liquidity. A ratio less than 1 suggests potential financial trouble, while a ratio above 2 may indicate excess assets relative to liabilities.
Step 3
Determine the Correct Answer
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Answer
Without specific values provided in the question, if we assume that the calculated current ratio falls within the acceptable range, the most suitable option is (B) acceptable.
