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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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