5 Questions
Which of the following ratios compares a company's most liquid assets to its current liabilities?
Quick Ratio
If a company has $100,000 in current assets, $80,000 in current liabilities, and $50,000 in inventory, what is the company's Quick Ratio?
1.25
If a company's Current Ratio is 2.5 and its Acid-Test Ratio is 1.8, which statement is true?
The company has a significant amount of inventory relative to its current assets.
Which of the following ratios measures a company's ability to meet its short-term obligations using all of its current assets?
Current Ratio
If a company has $200,000 in current assets, $150,000 in current liabilities, and $50,000 in cash and cash equivalents, what is the company's Cash Ratio?
0.33
Study Notes
Liquidity Ratios
- The Current Ratio is calculated by dividing Current Assets by Current Liabilities.
- The Acid-Test Ratio, also known as the Quick Ratio, focuses solely on a company's ability to cover short-term obligations with cash and cash equivalents.
- The Quick Ratio excludes Inventory and Prepaid Expenses from current assets.
- The ratio that measures the number of times a company's current assets can cover its current liabilities is the Current Ratio.
- The Cash Ratio is a liquidity ratio that focuses on a company's ability to cover short-term obligations with cash and cash equivalents.
- The Working Capital Ratio is not a liquidity ratio that measures a company's ability to cover short-term obligations with cash and cash equivalents.
- The Debt Ratio is a solvency ratio, not a liquidity ratio, and it measures a company's ability to pay its long-term obligations.
Test your knowledge on financial ratios with questions about the current ratio formula, the Acid-Test Ratio, and liquidity ratios. Choose the correct options to assess your understanding of these key financial concepts.
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