CFA Practice Question

There are 534 practice questions for this study session.

CFA Practice Question

An acceptable current ratio for a company in industry A is 2:1. If a company in that industry has a current ratio of 1.5:1, then the ______
A. company must make changes to achieve a 2:1 current ratio.
B. company must improve its debt-paying ability.
C. ratio must be investigated further.
Explanation: If a company's current ratio falls outside the norm, it should be investigated further. A company with a current ratio higher than 2:1 may have inventory or accounts receivable that are too large or poor cash management while a company with a current ratio less than 2:1 may not. For this reason, all standards for evaluating financial performance should be used with care.

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