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    Question

    Which of the following is correct about the liquidity

    position of a company whose current ratio is 2.5, and quick ratio is only 0.9? 
    A The company has adequate cash and bank balance Correct Answer Incorrect Answer
    B The company has excessive receivables Correct Answer Incorrect Answer
    C The company maintains high inventory level Correct Answer Incorrect Answer
    D The company is at high insolvency risk Correct Answer Incorrect Answer
    E The company has fictitious assets Correct Answer Incorrect Answer

    Solution

    The difference between Current and quick ratio is that in quick ratio, inventory. which is considered as less liquid, is not considered as quick current assets. Thus, a significant gap between a current and quick ratio indicates that the company has high levels of inventory in its current assets. 

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