A company, ABC Corp., reported the following financial metrics for the year ending 2023: Current Assets: $500,000 Current Liabilities: $300,000 Total Debt: $400,000 Total Equity: $600,000 To assess the liquidity position of ABC Corp., an analyst decides to calculate two ratios: the current ratio and the debt-to-equity ratio. Which of the following statements about these ratios is correct?

Exam

CFA Level 1

Section

Difficulty

Financial Reporting and Analysis

Understanding Current and Debt-to-Equity Ratios

Medium Analysis Techniques Ratio Analysis

A company, ABC Corp., reported the following financial metrics for the year ending 2023:

Current Assets: $500,000
Current Liabilities: $300,000
Total Debt: $400,000
Total Equity: $600,000

To assess the liquidity position of ABC Corp., an analyst decides to calculate two ratios: the current ratio and the debt-to-equity ratio. Which of the following statements about these ratios is correct?

The current ratio indicates that the company can cover its short-term obligations with its short-term assets.

A debt-to-equity ratio greater than 1.0 indicates that the company has more equity than debt.

Both ratios are not useful for assessing financial health.

Hint

Submitted13.1K

Correct9.7K

% Correct74%