The current ratio is a measure of:

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BlackTom AI · Accepted Answer

To approach this question, start by identifying what the current ratio represents in financial analysis.
Option 1: "liquidity." The current ratio directly measures liquidity, specifically the ability of a company to meet short-term obligations with its short-term assets. This makes it the correct interpretation of the current ratio.
Option 2: "all of the ratios calculated for the current year." This is inaccurate because the current ratio itself is a single metric (current assets divided by current liabilities) and does not imply that it represents all ratios calculated for the year; each financial ratio has its own meaning.
Option 3: "market performance." Market performance relates to how the market values the company, stock price movements, investor perception, and related metrics—not to the company’s ability to cover short-term obligations. Therefore, this option misstates the purpose of the current ratio.
Option 4: "profitability." Profitability measures include metrics like net profit margin, return on assets, and similar indicators of profit generation, not the liquidity of a firm in the short term. This makes the option inaccurate for describing the current ratio.
In sum, the current ratio is a liquidity measure, reflecting short-term financial health, while the other options describe broader or different financial concepts that are not what the current ratio assesses.

ACCT10001_2025_SM1 Tutorial Preparation Quiz Topic 7 & 8

The current ratio is a measure of:

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Similar Questions

At the end of 2012, Delaney Company had a current ratio of 1.87, a quick ratio of 1.31, and working capital of $45,000. Its current assets consisted of cash, accounts receivable, and merchandise inventory. Calculate the amount of Delaney's current liabilities (rounded to 0 decimals):

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Which of the following is not a measure of short-term liquidity?

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