6. Financial Analysis and Interpretation

Liquidity Ratios — Quiz

Test your understanding of liquidity ratios with 5 practice questions.

Practice Questions

Question 1

A company has Current Assets of $$ \$1,200,000 $, Inventory of $ \$400,000 $, and Current Liabilities of $ \$600,000 $. If the company uses $ \$150,000 $$ of its cash (a current asset) to purchase additional inventory, what will be the new Quick Ratio?

Question 2

A company's Current Ratio is $ 2.2 : 1 $, and its Quick Ratio is $ 0.9 : 1 $. The industry average for the Current Ratio is $ 1.8 : 1 $, and for the Quick Ratio, it is $ 1.0 : 1 $. What can be inferred about the company's liquidity and inventory management compared to the industry?

Question 3

Which of the following scenarios would most likely lead to a significant deterioration in a company's Quick Ratio, assuming all other factors remain constant?

Question 4

A company has a Current Ratio of $ 0.7 : 1 $. Which of the following is the most appropriate immediate action the company should consider to improve its short-term solvency?

Question 5

If a company's Quick Ratio is $ 1.5 : 1 $ and its Current Ratio is $ 2.0 : 1 $, what can be inferred about the company's inventory management and its impact on liquidity?