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a. Define working capital. Distinguish between the current ratio and the acid-test ratio. b. The current ratio

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a. Define working capital. Distinguish between the current ratio and the acid-test ratio.
b. "The current ratio is, by itself, inadequate to measure liquidity." Discuss this statement.
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a Working capital is the difference between current assets and current li...View the full answer


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Related Book For  book-img-for-question
Accounting Introduction To Financial Accounting

Accounting Introduction To Financial Accounting

ISBN: 9781517089719

1st Edition

Authors: Henry Dauderis, David Annand

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The current ratio is a financial ratio that measures a company\'s ability to pay its short-term obligations with its short-term assets. It is calculated by dividing a company\'s current assets by its current liabilities. The formula for calculating the current ratio is: Current Ratio = Current Assets / Current Liabilities Current assets are assets that can be converted to cash within one year, while current liabilities are debts that are due within one year. A current ratio of 1:1 or greater is generally considered good, as it indicates that a company has enough current assets to cover its current liabilities. A current ratio of less than 1:1 may suggest that a company may have difficulty meeting its short-term obligations. It\'s important to note that the current ratio is just one of many financial ratios that can be used to assess a company\'s financial health. It should be used in conjunction with other financial ratios and qualitative factors to make informed decisions about investing or lending to a company.

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