Florida General Contractor Practice Exam

A company with a current ratio of 3 to 1 would be considered?

1. Financially stable

2. Financially weak

3. Over-leveraged

4. At high risk

The correct answer is: Financially stable

A company with a current ratio of 3 to 1 indicates that it has three times as many current assets as current liabilities. This situation typically reflects a strong liquidity position, meaning the company is well-equipped to cover its short-term obligations. A current ratio above 1 is generally viewed positively, with higher ratios suggesting a robust ability to meet these liabilities. With a ratio like 3 to 1, it suggests that the company has a significant cushion to handle any unexpected expenses or downturns, which contributes to its characterization as financially stable. This type of financial health instills confidence in investors, creditors, and stakeholders, making it easier for the company to secure funding or credit if needed. In contrast, options indicating weakness, over-leverage, or high risk do not apply here as they typically indicate an inability to meet financial obligations comfortably or suggest that the company carries a disproportionate amount of debt compared to its equity. Hence, the current ratio supports the notion of financial stability.