Question

Which of the following combinations of ratios is preferable? O A. a high current ratio and a high debt ratio OB. a low current ratio and a low debt ratio O c. a high current ratio and a low debt ratio O D. a low current ratio and a high debt ratio

Answer 1

Answer C is preferable.

C) High current ratio and low debt ratio

Because High current ratio makes , The current ratio is a liquidity ratio that measures a company's ability to pay short-term obligations or those due within one year.

Low debt ratio makes Low debt ratio, means that the business has taken on a less amount of risk(means most of company does not taken through debt) . Hence it is preferable

If it A) High current ratio and High debt ratio

Company ability pay its obligations within a year but with high debt ratio most of company assets on debt . so it is not Preferred

If itB) low current ratio and low debt ratio

The company hay has not pay its obligations early but it has low risk in debt ratio. So it is not Preferred

If it is D) Low current ratio and high debt ratio

The company has not pay its obligations within a year and also most of company assets taken on debt basis . so it is not Preferred.

Thank you.