A Current Ratio of Less Than 2

Multiple Choice

A current ratio of less than 2.0 is a potential red flag for a company because it means that

A) there is a reasonable chance that debt is outpacing equity.
B) sales allowances may be too high.
C) the company may have potential difficulty paying back current debts.
D) the cost of goods sold is likely too high.
E) profitability is not aligned with GAAP guidelines.