Series 79 practice questionmediumLiquidity Ratios
Company A has current assets of $120,000, inventory of $30,000, and current liabilities of $60,000. Company B has a quick ratio of 1.2 and current liabilities of $75,000. Which company is more liquid based on the quick ratio?
- ACompany A, with a quick ratio of 1.5✓ Correct answer
- BCompany B, with a quick ratio of 1.2
- CBoth companies have the same quick ratio
- DCannot be determined with current information
Explanation
Why A — Company A, with a quick ratio of 1.5
Company A's quick ratio = ($120,000 - $30,000) / $60,000 = $90,000 / $60,000 = 1.5. Company B’s quick ratio is 1.2 by definition, so Company A is more liquid.
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