Question : Which of the following are the objectives and significance of the current ratio?
Option 1: Current ratio is used to assess the firm’s ability to meet its short-term liabilities on time.
Option 2: According to accounting principles, a current ratio of 2:1 is supposed to be an ideal ratio. It means that the current assets of a business should, at least, be twice its current liabilities.
Option 3: The higher the ratio, the better it is, because the firm will be able to pay its current liabilities more easily.
Option 4: All of the above.
Correct Answer: All of the above.
Solution : Answer = All of the above.
All of the statements are correct regarding the objectives and significance of the current ratio. It evaluates the firm's ability to meet short-term liabilities, with a ratio of 2:1 considered ideal, and a higher ratio indicating better liquidity and ability to meet obligations.
Hence, the correct option is 4.
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