accounting

[crazecheeca]

a current ratio of 5 is uually an indication that the firm:
a. has a low degree of liquidit
b. has a reasonable degree of liquidity
c. has not made the mst productive use of its assets
d. has made the most producive use of its assets

thank you!

[factor-fiction]

Based on what you've studied so far, which do you think is likely to be the right answer?

[crazecheeca]

c because of leveraging but i was second guessing myself to think it was d

[factor-fiction]

Current Ratio - The current ratio basically tells you if a company has enough assets in case it needs to immeaditally pay off any debt. Total Current Assets/ Total Current Liabilities = Current Ratio. The higher the current ratio, the better of a company is. Any current ratio above 1 is considered good. Companies just starting out will usually have a current ratio less than 1.

I'm not qualified to answer this but given that a current ratio of assets to liabilities of 2:1 is usually considered to be acceptable, it seems to me that 5 is on the high side so it seems the company may not be efficiently using its current assets. So c.
It's not a or b because 5 represents a high degree of liquidity .