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      Question

      A company's current ratio is 2.5, but its quick ratio is

      only 0.9. What does this suggest about its liquidity?
      A Adequate cash reserves Correct Answer Incorrect Answer
      B Excessive receivables Correct Answer Incorrect Answer
      C High inventory holding Correct Answer Incorrect Answer
      D Insolvency risk Correct Answer Incorrect Answer

      Solution

      The significant gap between current and quick ratio indicates heavy reliance on inventory, which is less liquid.

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