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4 cards from this section. Quick, good the night before a test.
Define the Current Ratio.
Think about what current assets and liabilities refer to.
What are quick assets?
Recall which assets are excluded in the Quick Ratio.
What does the Current Ratio measure?
Relate it back to liquidity.
True or False: A Quick Ratio of less than 1 indicates strong liquidity.
Think about what a Quick Ratio entails.
A business has current assets of ₹500,000, current liabilities of ₹300,000, inventory of ₹150,000, and prepaid expenses of ₹25,000. Calculate the Current Ratio and Quick Ratio.
Apply the relevant formulas for each ratio carefully.
Consider a scenario where a company has a High Current Ratio (4:1) but a Low Quick Ratio (0.5:1). Discuss what this could indicate about the company's financial health.
Think about how inventory affects liquidity.
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