The geometric progression common ratio represents the proportion of_______________?
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Answer: B. Current assets to current liabilities
Explanation
The current ratio represents the proportion of current assets relative to current short term liabilities. Financial analysts use this fundamental metric to evaluate a company's short term liquidity position. Comparing liquid assets against obligations shows whether an entity can cover immediate debts. Current assets typically include cash inventory accounts receivable and marketable short term securities. Current liabilities encompass accounts payable short term debt and accrued operating expenses. A higher ratio indicates greater financial cushion for meeting unexpected operational cash requirements.
Corporate finance managers monitor liquidity ratios to ensure smooth day to day business operations. Lenders and creditors examine the current ratio before approving commercial loans or credit lines. Maintaining optimal liquidity prevents costly insolvency events during temporary revenue downturns. Net credit sales compared to receivables measures accounts receivable turnover efficiency instead. Gross profit divided by net sales evaluates core product profitability rather than debt liquidity. Net income divided by owner equity measures return on equity for investors and shareholders.
- Subject
- Engineering
- Category
- Civil Engineering
- Topic
- —
- Difficulty
- medium
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