{"id":219500,"date":"2025-05-26T08:50:11","date_gmt":"2025-05-26T08:50:11","guid":{"rendered":"https:\/\/learnexams.com\/blog\/?p=219500"},"modified":"2025-05-26T08:50:13","modified_gmt":"2025-05-26T08:50:13","slug":"the-current-ratio-equals-current-assets-divided-by-current-liabilities","status":"publish","type":"post","link":"https:\/\/www.learnexams.com\/blog\/2025\/05\/26\/the-current-ratio-equals-current-assets-divided-by-current-liabilities\/","title":{"rendered":"The current ratio equals current assets divided by current liabilities."},"content":{"rendered":"\n

The current ratio equals current assets divided by current liabilities. Cardinal Corporation has a current ratio of 0.95. The industry average current ratio is 1.89. Cardinal Corporation appears to have __<\/em><\/strong><\/em><\/strong> relative to its industry peers.<\/p>\n\n\n\n

a.<\/p>\n\n\n\n

good investment value<\/p>\n\n\n\n

b.<\/p>\n\n\n\n

poor profitability<\/p>\n\n\n\n

c.<\/p>\n\n\n\n

short-term liquidity problems<\/p>\n\n\n\n

d.<\/p>\n\n\n\n

long-term solvency problems<\/p>\n\n\n\n

e.<\/p>\n\n\n\n

low stock market value<\/p>\n\n\n\n

The Correct Answer and Explanation is:<\/mark><\/strong><\/p>\n\n\n\n

Correct Answer: c. short-term liquidity problems<\/strong><\/p>\n\n\n\n

Explanation:<\/h3>\n\n\n\n

The current ratio<\/strong> is a key financial metric that measures a company’s ability to pay off its short-term liabilities with its short-term assets. It is calculated using the formula: Current Ratio=Current AssetsCurrent Liabilities\\text{Current Ratio} = \\frac{\\text{Current Assets}}{\\text{Current Liabilities}}<\/p>\n\n\n\n

A current ratio below 1.0<\/strong> indicates that a company does not have enough short-term assets<\/strong> to cover its short-term liabilities, which raises concerns about its liquidity position<\/strong>. In other words, if all current liabilities were to come due at once, the company might struggle to pay them using its current assets.<\/p>\n\n\n\n

In this scenario, Cardinal Corporation has a current ratio of 0.95<\/strong>, which means for every $1.00 of current liabilities, it only has $0.95 in current assets. This is below the industry average of 1.89<\/strong>, which implies that most of Cardinal\u2019s peers have almost double the amount of current assets relative to their current liabilities. The industry benchmark suggests a healthier liquidity position among competitors.<\/p>\n\n\n\n

This discrepancy suggests that Cardinal Corporation may face short-term liquidity problems<\/strong>. It may have difficulty paying off its obligations as they come due without selling long-term assets, borrowing funds, or delaying payments, all of which can be risky and costly.<\/p>\n\n\n\n

It is important to note that the current ratio does not directly measure profitability, long-term solvency, investment value, or stock market valuation<\/strong>. Those aspects are better evaluated using other metrics like net profit margin, debt-to-equity ratio, price-to-earnings ratio, or market capitalization.<\/p>\n\n\n\n

Therefore, the most accurate and relevant conclusion is that Cardinal Corporation has short-term liquidity problems<\/strong> relative to its industry peers, which could potentially impact its operations if not addressed.<\/p>\n\n\n\n

\"\"<\/figure>\n","protected":false},"excerpt":{"rendered":"

The current ratio equals current assets divided by current liabilities. Cardinal Corporation has a current ratio of 0.95. The industry average current ratio is 1.89. Cardinal Corporation appears to have __ relative to its industry peers. a. good investment value b. poor profitability c. short-term liquidity problems d. long-term solvency problems e. low stock market […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-219500","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/219500","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=219500"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/219500\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=219500"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=219500"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=219500"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}