Finance Ratios Calculation Quiz
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Questions and Answers

What does a current ratio of 1.9 indicate about a company?

  • Current liabilities are almost double current assets
  • Current assets are equal to current liabilities
  • Current assets can cover current liabilities almost 2 times (correct)
  • Current liabilities are almost double the industry average

    • Why is it concerning that a company's current ratio is lower than the industry average?

  • It implies the company is not affected by economic trends
  • It indicates the company is performing better financially
  • It means the company is too conservative in its financial management
  • It shows that the company may have cash flow issues (correct)

    • Why might the quick ratio be a more accurate measure of liquidity than the current ratio for a company?

  • It excludes accounts receivable from the calculation
  • It considers fixed assets as part of the current assets
  • It excludes inventory which is not easily convertible to cash (correct)
  • It includes long-term investments which are easier to convert to cash

    • How does a quick ratio of 0.36 for a company compare to the industry's quick ratio?

    <p>It indicates the company's ability to pay short-term debt is lower than the industry's</p> Signup and view all the answers

    Why might a current ratio trend analysis be useful in evaluating a company's financial health?

    <p>To see if the company's liquidity position has improved or worsened over time</p> Signup and view all the answers

    What could be a reason for a company having a lower current ratio compared to the industry?

    <p>Lower current assets and higher current liabilities</p> Signup and view all the answers

    Why is excluding inventory important when calculating the quick ratio?

    <p>Inventory may not be easily converted to cash in a short period</p> Signup and view all the answers

    If a company has a quick ratio of 1, what does this imply?

    <p>The company can easily pay off its short-term debts from its most liquid assets</p> Signup and view all the answers

    Why might a company's quick ratio be significantly lower than its current ratio?

    <p>The company has high accounts receivable.</p> Signup and view all the answers

    What can be inferred about a company with a very low quick ratio in comparison to the industry?

    <p>The company may face challenges in meeting its short-term obligations.</p> Signup and view all the answers

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