Water Works, Inc. has a current ratio of 1.33, current liabilities of $540,000, and inventory of $400,000. What is Water Works, Inc.'s quick ratio?
A) 1.11
B) 0.86
C) 1.90
D) 0.59
If a company's average collection period is higher than the industry average, then the company might be
A) enforcing credit conditions upon its customers which are too stringent.
B) allowing its customers too much time to pay their bills.
C) too tough in collecting its accounts.
D) too liquid.
Why is the quick ratio a more refined measure of liquidity than the current ratio?
A) It measures how quickly cash and other liquid assets flow through the company.
B) Inventories are omitted from the numerator of the ratio because they are generally the least liquid of the firm's current assets.
C) It is a quicker calculation to make.
D) Cash is the most liquid current asset.
Smith Corporation has current assets of $11,400, inventories of $4,000, and a current ratio of 2.6. What is Smith's quick or acid test ratio?
A) 1.69
B) 0.54
C) 0.74
D) 1.35
Kingsbury Associates has current assets as follows:
Cash $3,000
Accounts receivable $4,500
Inventories $8,000
If Kingsbury has a current ratio of 3.2, what is its quick ratio?
A) 2.07
B) 1.55
C) 0.48
D) 0.96
Which of the following ratios indicates how rapidly the firm's credit accounts are being collected?
A) Debt ratio
B) Gross profit margin
C) Accounts receivable turnover ratio
D) Fixed asset turnover
