Finance Ratios Calculation Quiz

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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?

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

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

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

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

Lower current assets and higher current liabilities Signup and view all the answers

Why is excluding inventory important when calculating the quick ratio?

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

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

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

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

The company has high accounts receivable. Signup and view all the answers

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

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

Finance Ratios Calculation Quiz

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Questions and Answers

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

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

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

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

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

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

Why is excluding inventory important when calculating the quick ratio?

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

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

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

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