Question

    A company's balance sheet shows Current Ratio = 1.2, and

    Quick Ratio = 0.7. What does this most likely imply?
    A High cash reserves Correct Answer Incorrect Answer
    B Excessive receivables Correct Answer Incorrect Answer
    C High inventory levels Correct Answer Incorrect Answer
    D Healthy liquidity position Correct Answer Incorrect Answer
    E Overdraft not reflected Correct Answer Incorrect Answer

    Solution

    Quick Ratio < Current Ratio indicates a significant portion of current assets is in inventory, which is excluded from the quick ratio.

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