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      Question

      Company A has a current ratio of 1.2:1 and quick ratio

      of 0.9:1. It also has significant inventory holding. What does this indicate about the company’s liquidity position?
      A Strong liquidity position Correct Answer Incorrect Answer
      B Poor long-term solvency Correct Answer Incorrect Answer
      C Liquidity depends heavily on inventory Correct Answer Incorrect Answer
      D Insolvency risk is high Correct Answer Incorrect Answer

      Solution

      Since quick ratio excludes inventory and is lower than current ratio, the company relies on inventory for meeting short-term obligations.

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