Question

What is the purpose of calculating the current ratio for a company like Grove Company?

A) To determine profitability.
B) To assess the company's liquidity and ability to meet short-term obligations.
C) To measure long-term debt.
D) To calculate asset depreciation.

Answer 1

The purpose of calculating the current ratio for a company like Grove Company is to assess the company's liquidity and ability to meet short-term obligations.

Step-by-step explanation:

The purpose of calculating the current ratio for a company like Grove Company is to assess the company's liquidity and ability to meet short-term obligations.

The current ratio is a financial ratio that compares a company's current assets to its current liabilities. It is calculated by dividing current assets by current liabilities. The result indicates whether the company has enough current assets to cover its current liabilities.

For example, if a company has a current ratio of 2, it means that the company has twice as many current assets as current liabilities. This indicates that the company is in a good position to pay off its short-term debts.