Which of the following best describes the current ratio? debt ratio operating performance ratio liquidity ratio...

Which of the following best describes the current ratio? debt ratio operating performance ratio liquidity ratio efficiency ratio

Expert Solution

The liquidity ratio best describes the current ratio.

The current ratio determines the position of liquidity in a business.The formula for current ratio = current assets/current liabilities. The higher the ratio, determines weather the firm is liquid or not, weather it has sufficient current assets to meet it's current liabilities.

Current ratio of 2 is an ideal ratio.

The correct option is option 3.

Debt ratio determines the amount of debt in a company, the lower this ratio the better. Formula of this ratio is total debt/total assets,It can be interpreted as the proportion of a company's assets that are financed by debt.

Operating performance ratio :

The operating ratio can be used to determine the efficiency of a company's management by comparing operating expenses to net sales. It is calculated by dividing the operating expenses by the net sales.

Efficiency ratio:

Inventory turnover ratio is a efficiency ratio which is The inventory turnover ratio measures a company's ability to manage its inventory efficiently and provides insight into the sales of a company.

Fixed-asset turnover,is also an efficiency ratio then, which aims to measure how productive a company’s fixed assets are when it comes to generating sales.

jeff jeffy answered 1 year ago

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