Which financial ratio relates most closely to a company's ability to pay its short-term debts?

A) Receivables turnover

B) Debt to equity ratio

C) Return on assets

D) Current ratio

Answer: D

The current ratio is

A) Current assets divided by current liabilities.

B) Cash and short-term investments divided by current liabilities.

C) Cash, short-term investments, and accounts receivable divided by current liabilities.

D) Cash, short-term investments, accounts receivable, and inventory divided by current liabilities.

Answer: A

Working capital is

A) Current assets divided by current liabilities.

B) Current assets minus current liabilities.

C) Cash, short-term investments, and accounts receivable divided by current liabilities.

D) Cash, short-term investments, and accounts receivable minus current liabilities.

Answer: B